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The VIX Uncertainty

The VIX Uncertainty

Jan 12, 2017

For a few years we have been discussing how manipulated the market has become and how unreliable it is to follow the past.  Don’t get me wrong, we are not throwing out everything and starting from scratch.  It’s just that suspending common sense and trading on market sense now requires extra patience.

For the past 10 years or so it was understood that the VIX (the fear index) would be a reliable gauge of the volatility in the market and thus giving us a level of fear with the market and the market makers.  Whenever we had major movements in the market indicating uncertainty the VIX would spike accordingly.  The VIX has averaged slightly above 20 for the past 10 years, but 2016 proved that the market once again is not cut and dry. Despite the ups and downs, even the major Trump Jump of over 1,000 points, the VIX barely reached 15 and quickly retreated.  In fact, the average for the VIX for 2016 is around the 15 mark.

The market considers the 15 point level as a support and resistance point.  Many traders or investors use the VIX to buy when it is priced above 15 and to sell when it is below 15.  Have you noticed that despite the fact that it is sitting around 11.50 the market has been trading close 20,000?

Although the market is bullish in movement, the data has been mixed with indications ranging from uncertainty to a great outlook.  The VIX should be trading around 25 or 30, not down around the 11 point mark.

Be on the lookout for a sudden shift and watch out for a Trump Dump as the market crashes down about 5%-10%.

Meanwhile, the UVXY which reacts on the basis of the VIX is undergoing a 5 to1 reverse split as of today, January 12th.  For those of you trading the UVXY, this could be a tremendous opportunity to place a few trades on the UVXY.

I am looking at a possible short call, long call, short put and long put.  Not necessarily a Condor type of trade, but as an opportunity to scalp the shorts, benefit from the long put and then use the long call to protect against a sudden upward shift.

The best way to make money in any environment is to follow the CARDINAL RULE and make your money work for you.

God Bless and remember…
                   Prosperity is the name of the game…
                                      Get started…Create Your Own Economy
                                                                        MAKE IT AND KEEP IT!!!!

 

By:  Louis Monsour

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