The VIX's overall trend, revealed by trends of price, leverage, and time, defined and are discussed in the COT Matrix for subscribers.
The market warned you long before continuation of the rally! Originally posted on 02/03.
How high must stocks go before the bears citing a low VIX recant their bearish calls?
The predictive power of the VIX is function of concentration and direction. Concentration, either extreme high or low readings, helps us quantify risk. For example, today's relative low VIX suggests complacency, while much higher ones define fear. Complacency and fear are usually bearish and bullish for stocks, respectively.
Timing stocks, however, requires more than a definition of concentration. Direction, the flow of money in and out of the VIX, is generally ignored in basic VIX analysis. Experienced traders know low VIX readings can linger for months or years before an uptrend falters. Lots of traders go broke shorting a low VIX.
While credible trading sources are predicting growing vulnerability of stocks' up trend because of a low VIX reading and seasonality, they fail to recognize direction, sentiment, long-term seasonality favors continuation (chart 2 and Seasonality). As long as money flows into stocks, a trend defined by a negative VIX trend oscillator (LTCO), it favors continuation of the uptrend. Although disciplined bulls may reduce risk during low VIX periods, they hold long positions until LTCO transitions from negative to positive.
Bottom line, it pays to follow the message of the market and challenge opinion, even when the opinion has a solid track record.
VIX data is taken directly from the Matrix.
Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.