My apologies to anyone who read this weekend’s newsletter and wasn’t familiar with the CBOE Volatility Index, or the VIX. I sometimes forget what’s getting processed in my head isn’t necessarily implanted in yours. Since I plan on keeping close tabs on the VIX in the near future, let’s go ahead and look at what it is exactly.

The Chicago Board of Options Exchange designed an indicator a couple of decades ago that was intended to predict near-term volatility. It was called the VIX, or volatility index. The higher the VIX went, the more volatile the market was supposed to be over the next one to three months. The volatility expectation was determined by a change in options prices, which tend to increase or decrease with volatility…..presumably.

What the CBOE found was the VIX didn’t respond the same way to bullish volatility that it did to bearish volatility. As bearish periods started, the VIX moved higher. When bullish periods started, the VIX sank. It was not a predictor of volatility, but rather became a ‘fear gauge’. A Higher VIX meant investors were fearful, and a lower VIX meant investors were complacent.

As long as fear and complacency were nominal, no big deal. It was observed, however, as fear and greed hit extremes - when the VIX hit its extremes - that the market was likely to be at a point of reversal. That’s why we’re not expecting a major upside move just yet…there’s not been a good, solid peak in fear yet.

Is it a flawless strategy? No, but look at the chart below….it works more often than not.

Bottom line: The VIX is a fear gauge. That wasn’t quite what it was designed to be, but that’s how it’s been regarded almost since its inception. Moreover, it’s a pretty good contrarian tool to utilize.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

As I’ve always stressed, we review and respond to all questions. Sometimes we even answer them in a public forum if we think it would be a good thing for everybody to know. Yesterday we got such a question via e-mail….it was the perfect time to explain to everybody how this site works. Our reader said…..

I was wondering when you recommended your stocks in play? Also do you let people know when to get out?

We always seem to have a new idea coming along, so if you’re looking for new ideas, just keep reading the newsletter. The directions are explicit, complete with an entry limit, target price, and a suggested stop. You’ll know it when you see it.

If you’re asking about when the ‘active’ current picks were made, you can find out a couple of different ways. One way is to click on the ticker symbol for the ‘Current Trades’ box, and you’ll be taken to a page with all the details - and a start date.

If you’re looking for the history (with dates) for our entire history, click on the ‘Trading Alerts’ tab in the top horizontal menu of the site. You can still select between open, closed, and all trades under that tab, but it’s easy to access. There’s a little less detail here, but if you click on any of the tickers on this page, you’re again taken to a page where you’ll find the entire history of our coverage.

Yes, we let people know when to get out….usually. Our assumption is you’ll get out if a target price is hit, so we probably won’t send an alert out with specific instructions to exit. If for some reason a stock is still active and we’re less than excited anymore - or we see something unusual (like a price spike) - we may send a note out to use your discretion.

To some extent you have to make your own decisions, as we’re not going to hold your hand through every last detail of every trade. But you’ll at least know where we stand when it comes to our opinion.

That’s not the only upside to this site though. You’ll also find tons of market commentary and bigger picture ideas to help guide you through those times where we don’t have a new trade for you.

My suggestion - take a look at the site to get a feel for how it works. Let us know if you have questions.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

Remember what I said back on March 10th about too many new lows indicating a short-term bottom for the stock market? The basic idea was that when things got downright painful, the worst was over…a bounce was nigh. Well, we may have gotten to that point on Monday, if the number of new NYSE and NASDAQ new lows we saw then was any clue. The charts tell the whole story.

The NASDAQ gave us 525 new lows on Monday…close to the levels we saw with the last few rebounds (though they each varied in size and duration)

The NYSE saw 764 new lows on Monday. That was the fourth highest reading in over a year. The last three all came in front of bounces, though only one was major.

Again, I can’t stress enough how no single tool is perfect. This new high/new low analysis works well, but only works great in light of other tools and data.

That said, the odds favored the bounce today, and Bernanke played a role too. The number of new lows said it was time for Bernanke to take action though.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.