FSU Editorial: "The VIX 'Bear Signal' Is Given" by Anthony Cherniawski 06/02/2006

THE VIX "BEAR SIGNAL" IS GIVEN
by Anthony M. Cherniawski
President, The Practical Investor, LLC
June 2, 2006

What a difference in three weeks! On May 8^th, I published my first missive on the VIX, entitled, “The VIX is not looking back.” For three and a half years, the VIX has been dismissed as an effective tool for “calling the turns” by market technicians. This may be a good time to reconsider that attitude, since the Volatility Index may be trying to tell us something.

Remember that saucer formations occur at significant market bottoms, and are considered to be quite rare. In this case, the bottoming of the VIX pattern may be considered an inverse signal for the market since, in more cases than not, a rising volatility index often spells trouble for the stock indexes.

In the last article, I suggested that there were two lines in the sand to watch in order to stay informed about possible changes in trend. The first was the blue trend line, which would be our aggressive early-warning signal. That trend line was broken on May 10^th.

The second line in the sand is the platform, through which a breakout occurred on May 12^th. Since the texts that I have reviewed on the saucer formations have not been clear at which point a signal is given, the confirmation of that move would have been a daily close above the platform, which occurred on May 16^th.

Another signal was the re-test of the platform, which occurred on May 26^th and the final re-test of the platform, which occurred on June 1^st.

Folks, this is as clear as it gets. It’s time to stop “looking up” and start taking profits. The new trend in volatility is established. Let the show begin.

Please note: The Practical Investor, LLC is a State Registered Investment Advisor

CONTACT INFORMATION
Anthony M. Cherniawski
President and CIO
The Practical Investor, LLC,
SEC Registered Investment Advisor
East Lansing, MI USA
Email

The opinions of FSU contributors do not necessarily reflect those of Financial Sense.