I always like to say that market bottoms are events and market tops are affairs.

An event is the market goes down and reverses upward – “bam”. It’s “v” like. An affair has more of a time component to it. It’s leisurely. So what does this have to do with Rydex data? Nothing really. But in an effort to improve our short term market timing, I am going to introduce our VIX indicator. Why? Because I want to and because I was asked the other day if I looked at the VIX, and my answer was that I had not in a long while. So I revisited the idea. The VIX or CBOE Volatility Index is the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". High values suggest fear and low values suggest complacency. The VIX is a measure of investor sentiment. Figure 1. S&P500/ daily

Figure 1 is a daily chart of the S&P500 from September, 2009 to the present. The indicator in the lower panel is a statistical measure of the VIX that assesses the current price relative to recent prices. The red line is a moving average of this function. Keeping with the idea that market bottoms are events, we note that spikes in the indicator to extreme levels are associated with short term bottoms. These spikes in the VIX are identified by the powder blue vertical bars. Keeping with the idea that market tops are affairs, we note that when the moving average of the VIX turns up from being at a low extreme, the market is close to topping. These are identified by the wide gray vertical bars. Of course, nothing is perfect, and this is true of the VIX indicator. Furthermore, this is supposed to be a service dedicated to the Rydex asset data. So why the VIX? The VIX is just another look at investor sentiment, and maybe it can help with our short term market timing. So we can get an idea how the VIX indicator and Rydex data interact. Our Rydex Combo Indicator (constructed from charts 1 thru 3 from the daily report) is in the middle panel. VIX sell signals, as noted by the wide gray vertical bars (i.e., moving average is too low), tend to do best when the Rydex market timers are too bullish. VIX buy signals, as noted by the powder blue vertical bars (i.e. spikes in the VIX indicator), do best when the Rydex market timers are too bearish. Figure 2. is like figure 1 but it covers the period from February, 2009 to August, 2009. Figure 2. S&P500/ daily

Words of caution: 1) there is no holy grail; 2) I am introducing another concept – the VIX – to better improve our short term market timing; 3) I have not completely back tested the use of the VIX and Rydex data together to see what conditions might bring about a failure; 4) however, these empiric observations look promising; 5) this will be a work in progress. One last thing: I will likely publish this Special Report on TheTechnicalTake blog sometime in the coming week. Just giving you a heads up.