The feature article deals with two indicators that we have occasionally referenced. They are long- to intermediate-term indicators and both are either on a sell signal or on the verge of one. The studies involving these indicators were much more complicated than normal systems because of the longer-term nature of the holding period.
Two indicators that we have only briefly discussed in the past are now at an overbought state. Since each has merit, it was decided that a study should be done on the data to see if there was some usefulness other than just yet another overbought indicator. Sometimes when one looks at data in just the right way, a new thought for an indicator will jump into one’s head, and that’s pretty much how these came about.
For the second time this year, the feature article discusses the overbought state of the stock market. There are quite a few overbought conditions, and all are enumerated in this article. However, overbought does not mean “sell,” unless some actual sell signals are received – which, so far, have been lacking.
When one says that “the market” is overbought, he really means that a number of trusted indicators are in extreme states of bullishness. Recognizing that “the market” is overbought is only moderately useful. That’s because an overbought market can still rise strongly, while remaining overbought. Things work similarly, but in reverse, for oversold markets.
The feature article deals with the fact that, once again, $VIX is receiving criticism when it really shouldn’t. Most people really don’t understand what $VIX should and shouldn’t be used for. We try to shed some light on the topic, in light of recent articles published on the subject.
There are always critics sniping at $VIX, but they are usually fringe players – often with an axe to grind, such as promoting their own version of volatility calculation or something like that. But recently, the criticism has grown much larger and is coming from the center of the investment landscape.
With the market having broken down in the past two weeks, this issue has a lot to do with volatility. The feature article discusses bullish setups via volatility spike peak buy signals in four different markets. Recommendations are made in GLD, EEM, and AGN.
With the stock market collapsing recently, option implied volatility spiked higher in a large number of markets. Of course, actual (historical) volatility has increased as well, but it is implied volatility that reflects more of the panic mood of the public, and thus is the one that can be used as a contrary indicator.
The feature article discusses the fact that stocks, bonds, and the U.S. Dollar have all been declining together. A hedged position is recommended in Bonds vs. the Dollar.
The $VIX spike peak buy signal was stopped out, but another may be setting up (page 4).
