Buy the VIX spike

Gees guys, we take one week off from posting and the whole place falls to pieces!? Who broke the market is perhaps not the question we should be asking though. We’re asking, will the dippers win again? There are some mixed feelings on this at the moment. Our local market looks, well, not very good. We had a hard time finding any kind of setup that was not bearish. Things are looking dire here. In the offshore world though, although there is an similarly high level of confusion, we do have some ‘reliable’ buy indicators that give us hope for a bounce next week. So let’s look at why it might be time to buy the VIX spike.

Offshore trade ideas
S&P 500 Volatility Index (VIX)

So we’re going to look at a few things here. In the past we have seen that the VIX term structure can provide reliable buying signals while the rest of the world is in a flat panic. The first chart (below) shows that VIX term structure has started to invert. This may be a little early still as the term structure has not completely inverted, but generally it’s been a good buy signal for equities.

We’ve also seen that in recent times, when the VIX gets up to around the 28 level, it has retreated back down rather quickly as the dip buyers step in to buy equities. Also shown here is a big red line which indicates the call option expiry we had on a previous VIX trade. In truth, it was silly not to roll the contract… but alas, you can’t win them all. From here though, perhaps a put at 20 with a 30 day expiry might be a good trade.

S&P 500 (SPY)

Following on from the VIX narrative, SPY could be a buy on Monday. From a momentum perspective it appears as if the pullback has some way to go still, although looking at historic VIX spikes and the subsequent bounces in SPY, it does look like a high probability buy setup.

buy the VIX spike
Brent Crude Oil

Talking about VIX spikes, pullbacks and buy signals, here we look at OVX (oil volatility) versus the Brent Crude Oil price. We can see here too when OVX spikes as it did last week, it is generally followed by a rather sharp recovery. We like the long oil trade here and think it is likely a good time to add to oil exposed equities as well.

buy the VIX spike
Russell 2000 (IWM)

This breakout trade hasn’t gone too well at all. We’re going to be a bit patient here though and see if our buy the VIX spike idea plays out in the coming week or not.

That’s all folks

That’s all we have for you this Sunday. If you would like more insights and trade ideas, consider opening a trading account with us and joining our community. We work really hard to add value for our clients by giving them information, analysis and guidance. We also offer some very competitive rates on trade executions and have accounts that are suited for very active, semi-professional and intraday traders. Give us a call or drop us an email if you would like more information.

*Please note that these trade ideas form part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.

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Markets change all the time. New fundamental drivers emerge, technical setups mature or fail and our trading plan must adjust in order to keep up with the ever changing environment. Every week we highlight some of the trade ideas that are generated within our client community so that you can stay on top of what we're looking out for and planning to trade at the beginning of each week. 

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