US Market

Market players are waiting to see whether US officials will be able to come to an agreement to the bailout package. The market has been plagued by high volatility lately.

The VIX closed at 34.73 on Friday. It spiked to a high of 42.16 on 18 Sep. Assuming that you buy into the Dow Industrial Average when the VIX went above 40 and hold the trade for approximately 1 year, the trading result is as follows:

Entry Date	Entry Level	Exit Date	Exit Level	% Change
1-Sep-98	7583.09	7-Sep-99	11079.08	46.1
4-Sep-98	7737.32	10-Sep-99	11087.00	43.29
8-Sep-98	7964.91	13-Sep-99	11027.40	38.45
11-Sep-98	7583.61	16-Sep-99	10795.77	42.36
14-Sep-98	7936.08	17-Sep-99	10745.38	35.4
1-Oct-98	7749.42	6-Oct-99	10399.77	34.2
2-Oct-98	7631.50	7-Oct-99	10588.34	38.74
5-Oct-98	7760.75	8-Oct-99	10534.52	35.74
6-Oct-98	7733.97	11-Oct-99	10649.76	37.7
7-Oct-98	7754.82	12-Oct-99	10648.81	37.32
8-Oct-98	7734.48	13-Oct-99	10412.31	34.62
9-Oct-98	7806.57	14-Oct-99	10230.89	31.05
12-Oct-98	8038.03	15-Oct-99	10286.61	27.97
13-Oct-98	7982.68	18-Oct-99	10018.45	25.5
14-Oct-98	7925.01	19-Oct-99	10117.54	27.67
18-Sep-01	8922.70	23-Sep-02	7984.77	-10.51
20-Sep-01	8375.72	25-Sep-02	7687.16	-8.22
21-Sep-01	8356.56	26-Sep-02	7844.62	-6.13
24-Sep-01	8242.32	27-Sep-02	7996.01	-2.99
23-Jul-02	7785.55	28-Jul-03	9284.92	19.26
24-Jul-02	7698.46	29-Jul-03	9268.19	20.39
5-Aug-02	8312.92	8-Aug-03	9127.36	9.8
6-Aug-02	8049.93	11-Aug-03	9189.62	14.16
7-Aug-02	8282.25	12-Aug-03	9218.12	11.3
20-Sep-02	7945.93	25-Sep-03	9425.58	18.62
25-Sep-02	7687.16	30-Sep-03	9378.10	22
8-Oct-02	7425.82	13-Oct-03	9675.72	30.3
9-Oct-02	7499.96	14-Oct-03	9763.27	30.18
10-Oct-02	7286.34	15-Oct-03	9824.09	34.83
19-Sep-08	11027.51	Open	Open	1.05

You have a total of 30 trades with 26 ending with a profit.

Dow And VIX Update

On Friday's trading session, the Dow Industrial Average closed down 256.56 points at 12325.42. General Electric shocked investors with lower-than expected earnings and a profit warning that wiped $46.9 billion off its value and sent the overall market slumping.

The VIX closed at 23.46.




If you look at the VIX chart, you can draw a trend line ("Blue Line") connecting the bottom formed on Oct 07, Nov 07 and Apr 08 respectively. These 3 points marked the beginning of significant drop in the Dow Industrial Average ("Red Line").


The VIX is not painting a good picture for trading next week. So do trade with care.

Dow and VIX Updates

Friday was another down day for the Dow. It closed at 11951 points, down
194 at the close. The VIX reached a high of 32.89.

A high value for VIX means there are a lot of fear in the market.

If you look back on the historical value for VIX, you can see that we
experienced similar high volatility back in 2001 and 2002.

The trend for the Dow is still to the down side.

The index is now firmly below its 200 day moving average (Green Line) and 50 day moving average (Red Line).

The bulls did try to take the index above the 50 day moving average but it
hit the resistance on 28 Feb 08 and has continued to move lower.

Usually when VIX reaches a high value, a reversal is near. This time round, the catalyst may come from the US Federal Reserve. Let's see whether Mr Ben Bernake is able to help this market turn around.

DOW, USDJPY And VIX Updates

VIX (Red Line) is now at 27.49. This is not the highest that VIX has attained for the past one year. We have seen the VIX went as high as 37.5 in Aug 2007 and Jan 2008 respectively. Nevertheless, VIX is moving up and that is not a good sign.



The USDJPY (Green Line) is now at 102.83. It is now very close to the lower end of the down trend channel. The good news is USDJPY has rebounded from 101.41 and the hourly chart we are seeing a higher low. If it breaks 103.23, then it will make a higher high. That will be good news for the bulls. However do note that USDJPY is still clearly in a down trend and any rebound will most likely not be sustainable.

The DOW has broken through 12,000 which is a critical support level. It is now at 11,893. That is very near the Jan low of 11,508. Let’s hope that 11,508 can hold water.

DOW And VIX

VIX (in Red) has broken down of its symmetrical triangle. It is now at 23 level. There seems to be less fear in US market now compared to a few weeks ago.

The Dow has rebounded and is close to testing the upper limit of its symmetrical triangle as well.


USDPJY is also refusing to go below the 21 day exponential average (in Green).

This is also good for the Dow as a strong USDJPY usually coincides with a rebound in Dow.

Seems like we will see more strength from US this week. But keep your fingers crossed as there are important economic data coming out from US this few days including PPI, Initial Claims and Consumer Confidence.

DOW And VIX

There is a saying in the market that goes like this. When the VIX is high it is time to buy and when the VIX is low it is time to sell.

VIX is a volatility index created by The Chicago Board Options Exchange in 1986. It is an important gauge of market volatility.

VIX measures the implied volatility of SPX options hence it will go up when traders expect volatility to increase.

You can treat the VIX as a fear indicator. When traders are afraid that market will drop sharply, VIX will go up. The reverse is true. When traders are more complacent, thinking that market will continue to go up, VIX will be low.

In the chart, the red line is the VIX and the candlestick chart is the DOW Jones Industrial Index.

You can see that when the VIX spikes up in Aug 07, Nov 07 and Jan 08, the market managed to stage a rebound.

The VIX is now at 25.02, not a high value based on the past year data. It is now forming a symmetrical triangle pattern which means that market can either spike up or down. If the VIX is able to go below 25.02 next week, it will be a good sign and DOW should stage a rebound.

If the VIX goes down to around 20, then it is time to be more cautious.

My personal view is VIX should go below and test the 20 region again.