Timothy Collins

Stock quotes in this article:

vxz

vxz

XIV

Now it’s copper’s turn.

Oil, still getting headlines and having trouble getting in gear, now must share the spotlight with copper. These commodities have traders on edge. As soon as big moves emerge in commodities, we see more and more folks talk about them. It won’t take long before someone says, Now everyone is a ___ expert.

Oil, copper, currencies, precious metals, etc. Take your pick. Aware is more like it. And I think it is tough to say anyone is an expert in these areas. At one time, movements were based on supply and demand, but now we have traders and hedge funds and the idea of a money grab. Supply and demand seems to have very little to do with the actual move (more an imprint on psychology), which makes it difficult for anyone to be an expert.

The same can be said for volatility, but none of this means we can’t take a look at past patterns and try to make a prediction for the future. So that’s what we’ll try and do here with a few different looks on volatility.

While I find it tough to base decisions solely on the Volatility Index (VIX) chart, I do think it is worth a look when times get a little rough. It speaks more to psychology than anything. Often you can see the points where even staunch bulls simply give up for the short term. Right now, we may be at one of those crossroads. The VIX is pushing up against psychological resistance here. I say psychological because this isn’t a tradable security in the traditional sense (hence the name Fear Index).

Source: StockCharts.com

Currently we are pushing up against a fear tipping point not broken since 2012. This is the point where folks have said, alright, this is overdone and there is opportunity. And while some might look to the RSI and say it is a good thing we are far away from 70, I’m not sure I agree. The reverse points, where folks have said enough is enough, have happened at 70, while pushes over 70 have marked very good caution points for the next several months. So, sitting where we sit now feels riskier. I want to see that push to 70, which may indeed push the VIX to 30, but at least we could have some context then.

If we scale out to the Mid-Term Vix Futures using the iPath S&P 500 VIX Mid-Term Futures ETN (VXZ) as a guide, one might get the sense we are close to overdone on the upside. Close maybe, but not done.