Saturday, August 24, 2002 8:41:17 PM
Volatility-based methods
First, let's take a look at a 3-year chart of QQQ (the NASDAQ-100 tracking stock) for comparison purposes:
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1) Using the S&P-500 Implied Vilatility Index:
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When the VIX falls below the 20 level, this usually marks an intermediate-term top. When it spikes above the 40 level, this indicates an intermediate-term bottom. If it spikes to the 55 level, this indicates a much stronger bottom - one which is likely to hold for months. Note that the absolute level is not as important as the formation of a spike - i.e., a sharp rise, followed by an equally sharp drop. Also, the levels indicated above tend to change with the years. For instance, during the long bull market a VIX rising to the 20 level often meant a bottom, not a top. Also, during the 1987 crash this indicator reached much higher levels (around 170) and remained there (above 100) for several days in a row.
2) Using the NASDAQ Volatility Index:
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When the VXN reaches around the 40 level, this usually marks an intermediate-term top. When it spikes above the 70 level, this usually indicates an intermediate-term bottom. As with the VIX, it is the formation (spike) that is more important than the absolute levels - and the levels whemselves can change with time. The higher the spike reaches, the stronger the bottom.
3) Using the Average True Range of the S&P-500:
When the 10-day ATR of the S&P-500 rises above 30, this usually marks and intermediate-term bottom. When it falls below 15, this marks and intermediate-term top.
Regards,
Vesselin
First, let's take a look at a 3-year chart of QQQ (the NASDAQ-100 tracking stock) for comparison purposes:
1) Using the S&P-500 Implied Vilatility Index:
When the VIX falls below the 20 level, this usually marks an intermediate-term top. When it spikes above the 40 level, this indicates an intermediate-term bottom. If it spikes to the 55 level, this indicates a much stronger bottom - one which is likely to hold for months. Note that the absolute level is not as important as the formation of a spike - i.e., a sharp rise, followed by an equally sharp drop. Also, the levels indicated above tend to change with the years. For instance, during the long bull market a VIX rising to the 20 level often meant a bottom, not a top. Also, during the 1987 crash this indicator reached much higher levels (around 170) and remained there (above 100) for several days in a row.
2) Using the NASDAQ Volatility Index:
When the VXN reaches around the 40 level, this usually marks an intermediate-term top. When it spikes above the 70 level, this usually indicates an intermediate-term bottom. As with the VIX, it is the formation (spike) that is more important than the absolute levels - and the levels whemselves can change with time. The higher the spike reaches, the stronger the bottom.
3) Using the Average True Range of the S&P-500:
When the 10-day ATR of the S&P-500 rises above 30, this usually marks and intermediate-term bottom. When it falls below 15, this marks and intermediate-term top.
Regards,
Vesselin
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