Software & Finance

Stock Market - Next Buying Opportunity

Next buying opportunity is when CBOE - Volatility Index (VIX) stays above 35, spike to 40 and S&P 500 goes down by 20% from its annual high.

To know more about VIX, refer to my earlier articles on options section given below.


·  Option Price Calculator - June 05, 2010

·  Historical Volatility Index - Calculation - May 23, 2010    

As you have seen world markets started moving down for the last couple of weeks due to economic slowdown. I think it would create another buying opportunity for stocks. Even the biggest profit posted by Intel Corporation did not help stocks much.


VIX made a bottom at 22.87 on June 18, 2010 and started rising from that point. It did make a double bottom at 23.12 on July 13, 2010 which is slightly above the intraday low of June 18, 2010. This higher low creates bullish for VIX and bearish signal for stock market.


VIX touched intraday high of 35.39 on June 29, 2010. It is likely reset its recent high of 35.39 in the coming weeks. At the same time S&P might break well below 1000 as psychological level. It creates more people to loose confidence and end up in selling.


Chinese Stock Market index - Shanghai SE Composite Index plunged by 28.82% from its annual high of 3478.01 to 2475.42. China, the biggest emerging market, has seen the significant pullback of about 28% in the recent months can lead the rest of the world market to move lower. Similarly I expect S&P to plunge by at least 20% from its annual high of 1219.80 which would be 975.84.


When the bottom is formed there would be a huge volume and sudden intraday reversal might happen. It might be true in next time also. When VIX touches around 35, it might create selling pressure and it may even spike to 40 and can plunge immediately. We may not even have any time to login to take advantage of lowest prices. Instead of buying in one shot, create a ladder of orders even if you think this price can not reached for your favorite asset class. The intraday swing might help you fill the orders if you are lucky.


Note that even S&P 500 has formed the bottomed, not all asset classes might have formed the bottom. It may be lagging for couple of weeks nevertheless some asset classes might be leading couple of weeks. Use the technical indicators and fundamentals along with VIX signal to buy your favorite stocks / ETFs.


FAS is good to start buying when it goes below 15 onwards.

TBT is good to start buying when it goes below 30 onwards.

BP is good to start buying when it goes below 30 onwards.


Start buying - refers to your first buy for this asset class. If it goes down further, it would be more attractive to buy.


Note that these are leveraged ETFs and these asset classes might plunge or rise significantly than the expected level. Please read my earlier article on Leveraged ETFs


Be careful when trading Leveraged ETFs!

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Posted on July 18, 2010