There are a couple of things that bother me. I have spent years studying the VXO and one thing stands out, the actual number is useful ONLY in the short term and its relationship to price. On the other hand divergence and conformation with price sometimes is a very predictable tool. There are doubters so up front, nothing is perfect.
The actual VXO number is still very high relative to past history and price action. The chart below has %BB (yellow lines) and a 8 ema of the ratio of VXO inverted. ($one:$vxo = inverted, views better)
I have marked some CONFORMATION points of price relative to VXO. RED price decline period, GREEN price rise period. I have marked the crossing of the center line with significant movement as conformation of direction change. Note May-July '06 and compare with June-now, which has no conformation UP cross of price yet. A longer term chart is also displayed with more points marked.
History of the VXO has indicated that price and VXO move somewhat together direction wise and we do not have that at the present.
Not sure I explained it clear enough, so ask questions.
First chart will up date.
This is a longer term chart of the one above.
Edited by mss, 03 September 2007 - 07:28 PM.
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