Posts filed under “Technical Analysis”

Spiking VIX Creates Opportunity

I rarely disagree with with Mark Hulbert. He’s a longtime observer of the market and its players. Indeed, his tracking service keeps a keen eye on most of the newsletters that offer advice to investors.

However, Mark’s take on the VIX in the Sunday NYT was simply wrong:

"Does the VIX, nevertheless, have a role to play as a contrarian market-timing tool? Some market timers think it does, provided they focus on its recent trend rather than its actual level. These contrarians consider fast rises in the VIX to be bullish, on the theory that investors are quickly becoming scared. By the same token, rapid declines are taken to be bearish, since it must mean that investors are becoming smugly confident.

The Hulbert Financial Digest also failed to find support for this interpretation, however. On average, the stock market in the past has performed no differently after rapid rises in the VIX than it did after rapid falls."

Have a look at the chart below from the article:

click for larger chart


Graphic courtesy of NYT

You can tell Mark was never a trader:  any keyboard jock worth his salt looks at those VIX peaks and thinks "BUY."  Each major spike — depicted less usefully here as a percentage, rather than a numeric basis — neatly coincides with an excellent buying junctures: 1997, ’98, 2002 — even the short rally in 2001. (The percentage basis seems to work better at bottoms than tops)

Indeed, whenever the VIX spikes over 50, if you are not at least thinking about buying stocks, then you have no basis for calling yourself a contrarian. And if you can find any additional confirming indicators with the VIX up that high — its time to back up the truck.

For more on the VIX, see page 18 of Contrary Indicators 2000 – 2003 Bear

There are caveats to any statement such as that, but the bottom line is that a VIX spike tends to accompany a panic sell off — and that’s why it makes for a good buy signal.


If the Contrarians Are at the Gate, They May Just Be Lost
Published: August 21, 2005

Category: Psychology, Technical Analysis

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Apprenticed Investor: Tracking Elephants, Part II

Category: Investing, Podcast, Psychology, Technical Analysis

Apprenticed Investor: Tracking Elephants, Part I

Tscm_1The latest "Apprentice Investor" column is up at Its called  "Tracking Elephants, Part I." 

Don’t be fooled by the title to this piece: "Tracking the Elephants" could just have easily been named "The non Technicians Guide to Technical Analysis (in two parts)." The idea was to reveal to fundamentalists a few of the more significant ways they can use charts to improve their results.


Here’s the ubiquitous excerpt:

"Here’s an interesting question: If you could look at one and only one source before buying your next stock, which would you choose: a fundamental analyst’s report (with no charts in it), or the chart of your choosing?  While I like having access to both, I cannot ever imagine buying something without first looking at the chart.

And so we wade into the ongoing battle between technical and fundamental analysts. Frankly, it’s one of the sillier debates in investing. But I’ve heard so many bad arguments and misleading theories about technical analysis that I decided to weigh in."

Before we wade too deeply into the controversy, ask yourself: "Why do I need to choose?" Why wouldn’t you use any tool that can be shown to have value? You wouldn’t build a house using only a hammer, but no drills or saws. Why limit yourself away from a tool that can assist you as an investor?

In the column, I used a chart of Ford — but it could have been just about any company , from JDSU to Lucent to World Con or Enron.

Ford’s Downtrend
click for larger graph


Prior columns can be found here.

To keep the column a modest length, a discussion about Janus Funds
selling of AOL Time Warner was edited out.  For your reading
pleasure, that section is here.


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Category: Markets, Podcast, Technical Analysis

John Murphy’s Ten Laws of Technical Trading’s Chief Technical Analyst, John Murphy, has created another set of trading rules:   “Ten Laws of Technical Trading:” “Which way is the market moving? How far up or down will it go? And when will it go the other way? These are the basic concerns of the technical analyst. Behind the charts and graphs and…Read More

Category: Rules, Technical Analysis, Trading