Cobra and guinea pig…

Posted on Jan 29, 2011 by in Uncategorized

We have been watching this chart with rapt fascination for months — the way a guinea pig watches a cobra which is about to eat him.  And then yesterday he ate us.

It did not go down well.  We have mentioned the state of the VIX a number of times lately, but we didn’t do anything about it as generally we look for a signal to take action.  Yesterday looks like a signal to us.  We just wish we hadn’t had to pay so much for it.  And we HATE being sandbagged.  At the very least worse may be avoided for traders — i.e. hedging. some of which we are doing.  For our readrs, whom we expect to be longer term investors you might hedge by buyijng the VXX but in truth we (at present) expect this to be your normal moderately painful downwave (as opposed to your really obnoxious downwave as occurred in May).

There is a lesson here.  The next time a wave gets overextended and the VIX goes to depressed levels, buy some options or some VXX.

The other lesson is in broken trendlines:  IWM, MDY, the Qs, MVV, XLK.  So we are probably in for  a little rough weather here.

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