Sunday, 12 October 2014

A correction, long overdue ...

Both Dow Jones and S&P500 had not been able to maintain at the previously high level and had started to trend downwards in the past weeks.The past weeks, if you have watched some of the reasons that some of the analysts have given, they are quite interesting, some blamed the europe and Germany potentially going into recessions, China lousy numbers, and Ebola virus (most amusing). Whether these reasons are the cause of the recent correction, one may not know, but in the video clip here, a good sharing by Mr. Lim Say Boon, Chief Investment Officer from DBS. He mentioned that the correction is long overdue and that Asia is still cheaper compared to other regions.

One of the indicator which i always like to look at is the VIX index, this is also known as the fear indicator as explained below.
Relationship of VIX and STI
Before I go into this, one need to note that the VIX index has risen by about 40% since mid-Sept, is this a concern to you? 
When one google, one is able to find articles on VIX against S&P500 but I was not able to find one for STI. As such, looking at the major data points and major events, I found and as shown above, STI corrects when VIX is above 18. 
The first data point is the Asia financial crisis, VIX index was above 18 before STI crashed from 2415 to 857.
The 2nd data point is the dot com bubble, VIX index was above 20 before STI crashed from 2479 to 1267.
The third one is the most recent one where VIX index was above 20 before STI crashed from 3805 to 1595.
And last week VIX index surged to above 21 points, guess it's time to be careful, what do you think?


Sillyinvestor said...

Hi old man ( find it weird calling you that), hope no offense

If 20 is the time to be fearful, maybe 40 is the time to be greedy?

30 and above market corrects significantly e.g. Close to or more than 10% iirc

Oldman said...

If only it's that closely correlated, life in investing will definitely be much easier, isn't it :)

Money Honey said...

also an interesting read on "VIX Fact and Fiction-CBOE" :-