Trading With the VIX- Risk On Closer At Hand But Not There Yet

As a regular reader will know, I use a weighted average standardized VIX (WASV) and skew in an attempt to trade certain entry and exit points in the market. This can be either on the long or short side. A few weeks, I suggested going short the S&P 500 with a proverbial flip in the risk assesment. Essentially, the skew reached a near-term climax began to decline in conjunction with a WASV that had turned positive. Historically, this setup occurs in conjunction with market swoons, and I did not see the reasoning behind why it should be any different today.

Looking at the present readings, this dynamic remains in play and suggests that the market may continue to be under pressure. I present the latest WASV and skew data below.

Weighted Average Standardized VIX


Standardized Skew


History suggests the risk-off environment will persist as long as the WASV remains positive (but below the 2 demarcation) while the standardized skew declines. If we see a leveling out in the decline of the skew while the WASV climbs above 2, I would consider accepting market exposure. For now, I remain tactically short. However, this could change if......