Tuesday, September 06, 2005

VIX in 1994

Safe Haven | Why We Bought The VIX
In 1994 a false breakout of a three-year downtrend in the Vix yielded a final selloff to below the 10 handle and below the Bollinger band. This month we saw a long-legged doji occur to the outside of a Bollinger band, which alongside a bullish divergence in momentum measures almost always says a reversal is in!! We bought Vix futures two weeks ago then again this week with 3 to 1 leverage for an expected rally to 20 and potential 300% gain.


One of the best indicators for the hard asset / financial asset trend is the Dow to gold ratio. It is amazing how many market professionals are unaware of the simplistic beauty of this ratio. In fact, at this year's Reuters Round Table discussion on the dollar your editor defended James Turk from the PhD types that thought the ratio was ill informed.


In short, we feel the September-December period will be bearish for the dollar followed by a renewed advance from January to July 2006. If this were to play out, it would set up a MASSIVE head and shoulders pattern and a major short selling opportunity in 2006.