VIX Volatility Model - Model switches to BUY on January 21, 2016

Published : January 21 2016 at 9:27 ET

The Volatility Model has switched to a BUY signal. This means to buy ETFs such as VXX, VXZ, UVXY, etc (see list below). Price of UVXY at time email sent: <opening price>

For purposes of record keeping, UVXY will be used as the benchmark on BUY signals. For those who are more risk averse, buying VXY (0.5x) or VXX (1x) are better choices. Alternatively, one can position a smaller size to reduce risk.

As I wrote to members, all signals are being sent to give members a feel for how the model works. Note, in backtests, whipsaws can occur and whipsaw clusters can result where the model can get whipsawed more than once in a day, though this is a rare event. The losses for such whipsaws remain small compared to profits so testing has shown it is better to take all signals, and not try to predict whipsaws or whipsaw clusters.

Note, to avoid confusion, the signals are now in alignment with the VIX. When the VIX rises, the market usually falls, and vice-versa. Thus a BUY signal means to buy the VIX, meaning the model believes the market is heading lower. A SELL signal means to sell the VIX, meaning the model believes the market is heading higher.

When the model is on a BUY signal, buy ETFs such as VXZ (0.5x), VIXY (1x), VXX (1x), TVIX (2X), UVXY (2X). The model thus believes the general markets will move lower thus volatility will increase.

When the model is on a SELL signal, Buy any of ZIV (less volatile apprx 0.5x), SVXY (1x), XIV (1x). The model thus believes the general markets will move higher thus volatility will decrease.

Note, calling the Volatility Model a "model" is misleading as the algorithm is self-learning thus ever evolving with ever-changing price patterns. The same can be said for the Market Direction Model though it is self-learning at a much slower pace as it is designed to catch the major trends.

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