In our last missive entitled A VIX Buy Signal Worth Watching, we reviewed an actionable buy signal using the VIX that is (a) easy to follow and (b) has proved its ability to put the odds in your favor over time. We received quite a few questions and comments on this article, most of which had to do with applying an appropriate/matching sell signal.
So this morning, we thought it would be appropriate to talk about an actionable sell signal that investors might want to watch for in the near-term.
Remember: Most Indicators Don’t Go Both Ways
But first, as we’ve stated a time or two, a great many investors incorrectly believe that stock market indicators are able produce both buy AND sell signals. This is simply not true. Some indicators provide excellent buy signals but lousy sell signals, and vice versa. So, again, please don’t think that any single indicator can provide you with accurate signals to move in and out of the markets.
For example, the VIX Buy Signal we reviewed has proven to be pretty reliable in terms of producing short- to intermediate-term buy signals. However, as a sell signal, it leaves a lot to be desired.
In case the point has not been made clearly here, the real key to success in this game is to understand your tools and when to apply them. In short, you’ve got to use the right tool for the job at hand. Thus, investors should fill their quiver with indicators that provide good buy signals AND indicators that provide good sell signals. Simple, right?
Let’s Assume You Followed the VIX Buy…
Let’s assume you decided to jump on the VIX buy signal that was given a couple of weeks ago. Since then, the market has moved sideways in a tight range, albeit violently so on an intraday basis. If you bought on 3/17, your current position is flat to slightly down, depending on your entry point. Thus, the key question now becomes, where do you exit?
David Moenning is the founder and chief investment strategist for StateoftheMarkets.com, a website dedicated to investor education and portfolio analysis. Mr. Moenning is also President of Heritage Capital Management, a privately owned, investment management firm. Founded in 1989, Heritage is focuses on risk management and an “own the best and ignore the rest” equity selection strategy.
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Positions in stocks mentioned: none
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.