Note how VIX peaked while making the two bottoms in 2002 then made a lower peak when the S&P tested those lows at a higher level in March 2003.
Now look at the chart for today. VIX peaked twice last year as the market made two bottoms in 2008 with the major bottom on November 21, 2008 similar to the October 9, 2002 major bottom.
The market fell faster in the 2007-2008 bear market than it did for the 2000-2002 bear market so it would make sense that the bottoming process would be faster (time more compressed) too.
IF you are trading the markets and buying bounces off potential bottoms, then you will want to use stops just below the November 2008 lows, if not higher until we have a higher low. Until then, it COULD be premature to assume the bear market is over.
Watch the VIX. If it makes a lower low for 2009, this would be bullish.
I currently follow six sentiment indicators in my newsletter. These indicators are:
- ISE (International Securities Exchange) Sentiment Index
- II-BBS: Investors’ Intelligence Bull Bear survey
- CBOE (Chicago Board Options Exchange) Put/Call Ratio (CPC)
- AAII Bull/Bear Ratio (American Association of Individual Investors)
- VIX (CBOE Volatility Index)
- State Street Investor Confidence Index