When people dare to buy at the last minute....

I was expecting a stronger rebound due to last plunge about 10 days ago but the market could not wait and plunged again last Thu. It went down to test the previous low and even went a bit lower to close and VIX jumped high again, causing a lot of panic. I got a question about the direction of the VIX. Here is how I responded last Friday before opening: VIX jumped again nearly 40% yesterday and it's very overbought as of now. Can it go further up? Sure it can. But the risk is much higher to the downside than upside at this level. It can deflate very quickly when the market calms down for a while. If you hold VXX for hedging purpose, it's fine to keep a bit of it for a worst case. If for trading purposes, I'll look into selling it to take the profits. In any case, it's not a good idea to buy VXX now. The immediate upside is very limited to me unless something really terrible and scary arises.


We still saw some nervousness this morning at opening and S&P went further down and VIX went further up a bit (not much though). Here is the thing. When the market is quite oversold and VIX is very overbought, any further to the extreme ought to be very limited and a turnaround usually will follow soon. Well, it appears we got the turnaround later today and it is especially important to note that traders came in to buy at the last half an hour before closing. It is a strong indicator that traders are not so much fear any more at least for the near future and they can even put in money for the overnight uncertainty. The VIX came down 8% today and its price action is now sending a broad market buy signal and we should see another few days wonder-rally in the coming week or so. Again, this is still a dead cat bounce and S&P may not go beyond 2460 with this bounce.