Before we were so rudely interrupted by all the hullabaloo surrounding Janet Yellen's definition of a "considerable" amount of time (now known to be six months), we were looking at how the VIX could be used to help identify decent entry points for traders looking to get long the U.S. stock market.
And since the market still appears to be trying to make up its mind which way things will go from here, this appears to be as good a time as any to expand on the idea of using the VIX to "buy the freaking dips."
As discussed earlier in the week, a simple (okay, really simple) approach to identify turning points in the market after a correction is to wait for the VIX to first spike and then reverse lower.
Below are the charts we used as Exhibit A. No, this is not a sophisticated approach. But hey, it DOES seem to do a decent job.
S&P 500 Daily
VIX Daily
If you will recall, at the end of Wednesday's report, we promised to apply some fancy math to this approach to see if we couldn't come up with a more consistent, more quantifiable way to use the VIX to help you BTFD. So here goes.
But First, Some Caveats
Before we get started, there are a couple caveats worth noting. First, it is important to recognize that the character of the stock market has changed over the last few years. Blame it on Virtu, Getco, Citadel, Goldman (NYSE: GS) or JPMorgan (NYSE: p>More...