VXN chart (Nasdaq Volatility Index). As some of you who subscribe to this blog already know, I tend to put lots of credence in the 10% envelopes off 10 day ema as a gauge for imminent reversals. We had a strong spike on May 6th, followed by a drop and another spike, weaker this time, but taking us to the outer range. That is somewhat unusual, as spikes out of the envelope rarely see a re-occurence a week later. What does this mean? Either we are completely overdoing the fear, or we are about to begin a crash as panic starts building. What I do know, it's that this is a new development. Options are about to get more expensive as price swings widen. I urge you to remain cautious, but with the understanding that betting on a crash is a very low odds scenario. We are poker players in this business: there is lots of skill, but without the risk taking, there is no big pay-off, no matter how smart and savvy you are. Watch this index tomorrow and try to spot divergences (i.e. VXN highs not matching NQ lows, VXN lows not matching NQ highs etc...).
This entry was posted
on Monday, May 15, 2006 at 9:15 PM.
