The VIX trade

So idea on this was buying a yearly level on VIX at a place where stocks were very likely to pullback as a way to hedge the longs. 

This was suggested in the weekly strategy here : "If stocks consolidate I like the idea of trying TLT if above its 1HR1 level 127.87 and next weekly pivot; possibly looking to buy VIX futs J6 either with a move from Q1S1 17.72 as support or if one more plunge then down to YS1 (!) 16.85 would be a good stab at speculative long." 

And repeated here on 3/22/2016 daily SPY commentary: "Still, the VIJ6 idea could work as long as it lifts up from 16.85. This is a situation similar to the ES short idea at 1988, although this situation officially "speculative" as we are buying support (ie, speculative buy = something below all pivots). Depending on your agility you can simply wait for a clear reversal and enter there, or watch the hourly chart and buy with any lift from the same level, or could have entered speculatively at the close today in smaller size with trade valid above 16.85 from here. Of course the more time passes the more volume will shift into the K contract with different levels."

16.85 to currently 18.30 is up over 8% with DIA down -1.3% from price high to current level, and SOXX down about -2.8%. Of course you would not be putting in a huge amount of capital on a short term high volatility hedge, but 1 unit VIX would have helped quite a lot of the stock long position drop this week.

Of course the same idea could have been played through VIX ETF like UVXY. Obviously VIX related vehicles are strictly short term with a lot of deterioration either in futures or the ETF. The same idea could have worked through put options but that is just too much for me to go into here.

UVXY is up 15% from Tuesday's close (when VIJ6 reached 13.85) to current level. From Wednesday open to today's high was as 16% move. But this could vanish as quickly as it came so if taking as a hedge I'd be locking in some depending on how SPY and other indexes move on their weekly S1s. In fact SPY holding WS1 as RSI on the 1H chart reaches oversold sets the stage for a bounce which would quickly give back some of the hedge gains.   

Point: in the future if a short term hedge on longs looks like a good idea I'll mention VIX futs or or index puts because they are all doing the same thing - allowing one to hold winning long positions while there is a high probability of a near term drop. 

 

VIX

I really like the action on pivots with VIX and related vehicles. One glance at the first chart below and you'll see why. 

VIX W with long term levels only; and yes, weekly closes on the YP this year, last year's low very near 2HS1 and high bang on YR3. 

Here's the daily chart with medium term levels added. You can see VIX below the Q1P and thus below all pivots! It did come near the MarS1 but did not tag. Really VIX did not confirm any short setup yesterday, although did confirm a buy on 2/12 with a poke above the YP and clear rejection the next day. 

There are others: VXN, VXD, RVX. Here skipping to an inverse ETF which can help confirm a trade setup with stock indexes too. This was quite right on the August breakdown, also correct in staying under its YP in Q4, showing weakness of the market; below all pivots to start 2016, low very near YS1 then up from there. 

Lastly the VI futures which have high rollover. High of year bang on YR2, and recent drop under all pivots actually quite bullish for the market. Again not confirming a short setup yesterday, as it would need to lift above pivots. 

Two speculative maybe shorts

Last week I very gently hinted at an ES short near 1988 but it was more in a post called Thoughts on signals because 1) we didn't have a clear reversal yet and 2) not confirmed by VIX vehicles, which usually gives the best signals. 

Now, just because we have levels doesn't mean there is a trade or position adjustment. Taking entries anytime we are a level will drive you crazy. The important part is seeing the reaction from them and acting accordingly. This will mean you will have fewer incidences of buying *the low* or selling *the high* but a lot fewer trades with a much higher win ratio. Like I said the other post, if you are very active and want to pick turns better to do so watching very short term charts (15m, 1 hr, etc) on SPY and ES charts and incorporate daily and weekly pivots along with the other levels. 

So, this is why I wasn't just saying buy S1s anytime they tagged on USA indexes because you would have had a lot of stabs before finally getting a winner. The key difference was the confluence of several indexes making the same move and a very clear reversal 2/11-12. 

So if we apply the same idea on the short side, we should only short after a clear reversal. We may miss the move by some points, but again, far fewer entries. 

Anyway, keep an eye on ES today because under 1988 means Q1P rejection, FebR1 rejection, back under YP and 1HP. But anything above 1988 means long term support holding at that is bullish. 

Meanwhile, VIX made it down to 16 on Friday. This is fairly low although a far distance from 2015 lows of 10.88 and 12.80.  Measured by daily RSI it is quite low. Anyway, VIH6 may jump back above its FebS1 at at 19.01. So if you wanted to be long VIX that is the level to trade against and see what happens at the Q1P at 19.82, or if market continues its march up then we can watch next support 17.20.

12:45 EST update. So far indexes SPY & DIA holding above levels which is bullish. It would not take much for SPY to drop back below, but have to say DIA looks good here trying to lift above its YP; still under its Q1P though.