5Jan09 - Intraday Review

There's only ONE indicator, which's telling me tonight, that we might not be seeing very large wild swings on prices like in 4Q 2008.

That indicator is none other than VIX. Right now, it has come down to a decent level of ~38. Technically, VIX's chart can be read just like any equity charts. And technically, the next support level is at ~35...

what does this mean? it means, that the market is comparatively calmer now than 3 months ago. it also means, that option premiums are now relatively cheaper and traders have less incentive to Write options. it means that lesser people are buying Puts to protect their stock portfolio.

contrary to popular folklore that when VIX gets lower, market will rally. it is not an accurate way to define VIX indicator nor a correct usage of this indicator. many have argued that VIX is a better used as a temporary market "bottom" index, and i tend to agree. this means, that VIX is more informative when it is very high, like when it hit 90 recently. that signaled a temporary bottom, of cos, this is all in hindsight.

now that it is ~38, does it bear meaning that US Indexes will rally onwards, maybe and maybe not. i dont want to use VIX in this manner. it makes no sense to me. rather, i simply read current VIX level as being indicative that sellers are not panicking and lelonging. with no aggressive and panic selling, price should stabilize some what.

however, for markets to swing upwards, buyers must come en mass... otherwise, indexes will have a hard time climbing further.... and VIX does not give us any clue here... only Price/Volume action will tell us this....

so..... i'd be focusing on Volume for the rest of this month.....

good luck all....happy trading !!!