Learn from expert what to do in today's market

Investors dreaded the month of October, as most of the major corrections happened in the month of October, thus it got investors and traders nervous in this month every year. After my last post about VIX fear index, it surged to a high of 25 before receding back to a closing of 22. Before my post about VIX index, I did not see any post about using the fear index as a guide. At 22, it is still above the norm of 18-20, so many experts have advised to expect more volatility to come in the market. Apart from the VIX index, there is also another chart one can make reference to, which I found it interesting.

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 video.cnbc.com, 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.

http://www.investopedia.com/terms/v/vix.asp

Relationship of VIX and STI

yahoo.com

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?

Market watch: STI 8Feb

Is the selling over or is the rebound sustainable, that's the question that most of us wants to know. Although, STI has recovered a little, the 50d MA is still below the 200d MA. The weekly chart below is also showing weakness, with 10 MA trending downwards. Pivot is at 3105.

On the bright side, the party still continues with VIX below 20. If it goes above 20, one should start leaving before the party ends. :)

Should you be worried about Oct 17 - US debt ceiling ?

Thanks to the media and internet, by now most of us know that US will run out of money this week if the Republicans and Democrats cannot reach an agreement to raise the borrowing limit coming 17 Oct. And if this happens or is going to happen, shouldnt there be a lot of fear in the market.

One of the indicator known as the 'fear' indicator, VIX(^VIX) is commonly used as a guide to determine the sentiment of the investors or the volatility of the market. Looking at the chart below, the indicator is below 20 now, meaning that there is not much of fear now, business as usual. The last time that it hits 40 was in Aug 2011 period where there were lots of news about US and Europe being in a prolong recession and also at the same time, Standard and Poor's downgraded the US credit rating.

In that case, we still have a long way to go from the current 16 to 40.

Source: Yahoo Finance