What happens when VIX or VXN spikes when the market falls? Well, sellers of options demand higher prices to compensate for higher risk or higher costs of taking a trade. Also, buyers of options pay UP and take offers for options which gives them protection from declines in stock prices (or a big rise in stock prices). 90% of the time VIX rises when the market declines, which makes people think VIX or VXN only rises when stocks fall. But that isn't the case.
The nervous sellers sold into the stronger hands of the buyers. The sellers now sit comfortably in cash and HOPE to buy back their shares at the discounted prices that they sold them "in a panic". But, as you see, the market doesn't accommodate those nervous sellers very often.
What happens is the market finds support just above or just at the levels where sellers jumped-ship.
Take a look.
See the pattern?
Now - don't tell anyone about it.
10:31PM July 17, 2017
It is idea when the market holds the high end of the accumulation range. It is common to find support at the mid-point of the accumulation "box".
Either way, I hope you understand this important concept and are using it in your market timing/allocation strategies.
Tim 8/20/2017 8:05PM EST
I'm guessing you still think the pattern holds after today?
Funny story about my stupidity. 7/25 in the afternoon after the Fed, I meant to place a stop limit order around 113 (I'm trading TQQQ). Instead, I placed a limit order, which sold me off at 133.44. I got done with the meeting I was in and thought, DAMMIT, the market went up even more. This morning it went up even MORE more. Grrrrr.
Then came the afternoon dump, and a close of 111.74. After hours, it's at 110.41.
Sometimes it's better to be lucky than good, I guess. IF, of course, the pattern holds. And I didn't look at VIX or VXN, but I can take a guess. IF the pattern holds....
How long is this good for? It can't go on indefinitely...