July 11, 2003, Friday, A Recommendation. Based on the VIX and SPX.
From: anonymous
VIX watchers; The saying goes, VIX is low, time to go. Don't let the door hit you on the way out. VIX at 20 is the put buy signal tripwire. Let's do a paper trade at least, ok?
Which puts to buy(watch)? SPX index LEAPS.
Strike price? 400 looks good. One contract for $0.25/share=$25. Market would have to go up some more for limit order at $0.25 to fill.
Watch this strike price of the put LEAP expiration of your choice for one quarter.
Is there a God? Let's see. Try paper trading this and watch carefully for three months.
If the VIX goes lower to say 19 or even 18? Bet the farm. Change to a strike price higher than $400, try $500, $550 or $600.
Why? SPX would be 1060 or more. Nasdaq would be around 2,000.
That would be unnatural in the same way that Nasdaq above 5,000 had been weirdo bizarro.
ROI? 100% to 2,000%, depending on the strike price.
Check the Open Interest on the puts. There are many like minded people ahead of you.

Have you been watching the charts and indices this year, 2003? Bernie has.
Bernie Schaeffer's June Option Advisor Commentary: The Bizarro Stock Market By Bernie Schaeffer, 5/29/2003
"Are we not in the Bizarro world when the dollar plunges while Treasury bonds soar to multi-decade highs? When the stock market refuses to break despite dollar weakness and despite interest rates declining below the levels associated with the three major stock market declines over the past year? When stocks rally because of what the Fed is implying (economic recovery) and bonds also rally because of what the Fed is implying (deflationary stagnation)? And when the key measures of risk (equity volatility indices and corporate credit spreads) are at multi-month lows while the uncertainty in the economy is perhaps at an all-time high?"
schaeffersresearch.com/schaeffer/bernie_observations.asp?ID=7783

Where will the market go next?
Based on the charts below, we would guess that next week the SPX would go sideways to up. If there is a close and open over 950, the upper Bollinger band may have been violated and the movement would be down the following week, August 19-23. If there is no violation, the SPX could hug the upper Bollinger band upward to as high as 1,000. If 1,000 is reached or exceeded too rapidly, the Ultimate Oscillator may register above 75. That would be a strong sell signal. The Ultimate Oscillator does not often register strong buy or sell signals. So a strong sell signal by the Ultimate Oscillator would be significant.

What's the direction of the markets? Who knows? The most reliable information comes from the charts. If you trade stocks and options, you want to know charting basics.
Let's assume that you've done your homework. You've read, Beyond Candlesticks , Technical Analysis Explained , The Visual Investor , and Technical Analysis From A to Z , for starters.

Bollinger Bands. Give a trend reversal signal when the bands are violated especially by an open and close lying outside the bands as can be seen here.
Stochastics show that the next couple of days should be at least moderately up.
Ultimate Oscillator almost registered a sell signal at the end of July, then flattened out into no man's land. Almost counts for horseshoes and hand grenades, but not for this indicator.
The SPX broke out of its channel and closed the week above 900 for the second time since the index dropped to 775. That should make for some support at the 900 level.
The MA is touching what Japanese call the Golden Cross area.

Why try to predict for oneself where will the market go each week? Financial advisory services treat investors like mushrroms. They keep Jane and John Q. Public in the dark and feed them BS. It's no surprise. That's what they get paid for. They can't be relied upon.
"Since 1963, Investor's Intelligence has been compiling data on the opinions of publishers of market letters."
"The resulting index shows that the advisory services follow the trend of equity prices by becoming bullish near market tops and predominantly pessimistic around market bottoms. Investors would clearly find it more profitable, then, to take a position contrary to that of the advisory service industry." From:
Technical Analysis Explained, Pring, 3rd ed., p. 358.
Wouldn't it be better to determine for yourself, rather than to follow the advice of industry professionals who are paid to mislead you?

Click to enlarge.

A fellow from the Netherlands, Ham-Jam, kept pestering us to tell him where the Market would go in the summer of 2000. Almost every day in the summer of 2000, as a matter of fact, Ham-Jam called and asked about various stocks or about the indexes. He was a fan of George Bush but, he was sure that George would loose the election. We told Ham-Jam to read about why it was inevitable that George would become president. Then we told Ham-Jam to read historical charts to confirm that whenever mules take over from elephants in the whitehouse, the indexes dive. All that Ham-Jam had been hearing in the financial media was the opposite, i.e., that George would be good for the Market. We said that George was not as bad as some would have you belive; he would at least give some predictability to the Market. A skeptical, cautious swing trader, Ham-Jam was long on seven different stocks to the tune of about $120,000. Not much, but still. Anyway he followed our suggestions based on info we obtained from charts, an instinctively contrarian bias, and big bad VeeJay. He cashed them out one by one. Then he watched the rest of the herd stampede for the exits with a grin. We told him to expect a long lasting bear market and not to expect the market to go up, just down. And for goodness sakes to stop reading what those silly financial pundits write. In fact, we told Ham-Jam that if he wanted to risk his cash in the future to watch that VIX. He is so cautious now that he only buys when the VIX is over 45. And sells when the VIX is just under thirty. The silliness at the end of the year 2000 is what convinced Ham-Jam to stop saying, "The VIX? But that's just for options traders, isn't it?" How many times have we heard that.

The VIX has just made a double spike above 50.

Click to enlarge.

If you would prefer someone who uses charts as well as nouns, verbs, prepositions and stuff like that, Bernie Schaeffer has a healthy cynical contrarian outlook. Bernie Schaeffer brags that he turned bearish in February of 2001. That's only one year later than the Kabu Sensei or VeeJay. What makes Bernie so darn good? He says he has a special sentiment indicator which helps him to be among the best market prognosticators. What about insider connections? Todd Shaver says no. See what you think after you have an opportunity to see his website.
Excerpts from Bernie Schaeffer's 8/2/2002 Option Advisor,
Commentary: Bottom? Probably Not.
"So why do I hesitate to call this the bottom?"
"As I just discussed, current market valuations are in the stratosphere relative to what we normally see at major market bottoms. And this fact is being ignored by the vast majority."
"The conventional wisdom ignores the crushing debt burden on consumers and corporations in the wake of the stock market bubble as well as the possibility of a housing market bubble."
Quite right Bernie. But we haven't discounted the Real P/E. The week of 8/12-16/2002 finished with a P/E of 36.77 for the S&P 500. It will go higher into the stratosphere as the next rally progresses.
"Bull markets are defined by bullish technicals, improving fundamentals, and skeptical sentiment. Bear markets are defined by bearish technicals, deteriorating fundamentals, and hopeful sentiment. And both the bull market of the 1990s and the current bear market followed this script to near perfection."
Right again, Bernie. The Market has followed its script, that's for sure. And you know what else? Hope never moves the Market up. Investor's were pavlovianized during the last decade and just can't shake loose from that conditioning. People are still trying to hope the Market up.

schaeffersresearch.com/sentiment/special/observations.asp
For more information or to subscribe to his Option Advisor, click here .

Will the VIX probably not look significantly different from this for the rest of 2002?
We asked this question rhetorically in the last half of 2002. Of course this scenario was the least likely. Why? The market doesn't move in a straight line. To form this pattern, the inverse of this chart, the market, would have had to have trended straight through the last six months of 2002. Which it did not.