VIX & Put:Call starting to make puts attractive again

A fair degree of complacency has snuck back into markets over the last month.  We don’t have a strong sell signal in stocks yet, but if April marked the high in US and European markets and economic indicators are turning down again, this could be a good spot to start building short positions again:


Here’s the equity put:call vs the 20 day moving average, back to one standard deviation under its mean. Dipping lower would require the kind of extreme complacency that we’ve only seen twice in the last decade, so I wouldn’t count on it:


The dollar has also corrected its overbought condition (and is actually very oversold), which is key for a resumption of the deflation trade:

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4 thoughts on “VIX & Put:Call starting to make puts attractive again

  1. Hi Mike,

    Elliottwave wise, do you basically go along with the idea that we are somewhat close to the top of Minor 2.

    These “Minor” waves have been of a much longer duration than some Elliottwave experts would have expected. One description I read noted that, in general, “Primary degrees are measured in months, Intermediate degrees in weeks, Minor degrees in days.”

    That sure has not proven to be the case.

    Interesting to hear your thoughts on building short positions again.

  2. Hello Mike,

    Nice to see your postings again. What’s up these last few weeks? The postings have become quite rare.

    Idem to Bjorn, I’d like to know your thoughts too regarding Minor 2 wave. I guess if I infer from your previous posts, it seems you don’t put that much commitment to the longer term counts… just primarily observing what is coming soon & some statistical measures that are surely out of whack.

    As for volatility plays, what are your opinions on VXX (ETF of short term VIX)? Is that a reasonably good instrument to play volatility?

  3. Hi rogerjarema

    I’ve been trying to understand Elliottwave analysis for a few years now. I was impressed with Prechter’s work, and still am very interested in it. I moved into LEAPS about one year ago, after Prechter expressed his opinion that, for those who wanted to invest in the market, it was time to return to the short side.

    You are right, I am primarily observing, and that is because I have not found anyone out there who has really been able to call this market. I sure can’t, and so I try to learn from others.

    As far as I can see, this market seems to have defied everyone’s attempt to call it, which confirms my overall sense that our world, not just the market, is in uncharted waters. I’d be interested in knowing if there has been anyone who has really hit it on the head. Keep in mind, I’m a beginner here. I’m no trader. Maybe some of those guys have been knocking it out of the park on their short-term trades. I’m just not tuned into that world. Mike has made some calls, which he reported here in the not too distant past, that amazed me.

    I am waiting (hoping really might be the better word for it) for the market to prove to me that we truly are in Primary 3 wave down. The Elliottwave people I read all think we are nearing the top of Minor 2, at least that is what they think of late, and I hope they are right. I may be a beginner, but my “gut” has not been entirely wrong during this last 12 months. There have been times when the expert’s forecasts simply were not convincing to me, and I was right, which kind of surprised me. Not that I was able to turn my gut feelings into profits; however, my gut did save me from jumping in further.

    My faith in Elliottwave forecasts is certainly not what it used to be, but it still offers a way to look at the market, for better or worse. I’m trying to expand my horizons, however, so that I do not rely too much upon the wave counts.

  4. Hi Bjorn,

    I guess from my experience in the past year and half, it taught me not to trust any wavecounts religiously. There are those times when the counts offer significant degrees of accuracy: usually in ending diagonal patterns, where the previous counts support for that formation to occur. But for most of the time, we have to rely on something else rather than wavecounts because most of the time there will be quite a number of possible counts… and at instances (not rare, either) the waves don’t behave as it’s supposed to.

    As to Prechter’s P3, I think it’s just one possible path out of many others. Certainly if you follow EWI since 2009, most likely by now you’ll be deeply frustrated. They usually go with the most bearish count available at the time… and after mere days, the count is often invalidated. So, I think it’s much better to be open minded about this and incorporate other types of analyses as well: classical TA, intermarket (usually observing divergences between equities vs. treasuries, currencies, etc), sentiments (VIX, CPC, etc).

    Fundamental-wise, we know what’s going on: economic slump, ever more corrupt governments, socialism spreading all over the globe – and this isn’t going to end well. These naturally make us believe in the more apocalyptic scenario. It may well happen, but there are other alternatives to that as well, e.g. 20-yr slump with market going nowhere in a trading range (likely in a range significantly lower than now, but much higher than DOW 400).

    In short, we have to be open-minded. This will also likely prevent us from making the most of the crash (if it really happens) because it will limit the extent of our commitments to a strategic position. But hopefully we still make handsome money along the way.

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