Hi everyone, I hope you enjoyed your week.
Indexes closed slightly lower this week, but the VIX continues to drop rapidly. Although I think the indexes could still retest the lows made last week, I think very sharp “limit down” moves and extremely large drops (more than 5%) are much less likely now.
Above is the daily chart of the VIX (volatility index). VIX moves up if there is more option buying (both puts and calls), although put purchases have a larger impact on the price than calls. Although the indexes moved down a bit today, the VIX moved down, hinting that the bottom is in, or that at least we are near it.
More evidence that we are at or near a bottom comes from insider activity. Take a look at the recent insider purchase activity here. Last time it was near this level was when the majority of the stock market bottomed in late 2008 and when the entire market finally bottomed in March of 2009.
Lastly, bearish sentiment has been unusually high (1 or more deviations above the mean) for the last 3 weeks. Source. We use this as a contrarian indicator – if everyone is bearish, they already sold, and thus the market “has” to go up.
Because I am long term bullish at these price levels, I bought more shares of Boeing after my put expired in the money today (sold the 140 strike put for 10 dollars). I don’t plan to add any more shares unless we dip below 100.
In terms of asset allocation, I am now 45% stocks and 55% cash. Thanks for reading and see you next week.