As a follow up to Monday's post on Volatility Peaks here are 4 additional studies of STOP Volatility that illustrate why SPY is an excellent target for high odds success while other sectors do not demonstrate the same linearity.
First, XIV.... the VIX inverse ETN...which hypothetically should offer great correlation odds if our peaks are based on volatility. Not so, it turns out and I've mentioned many times before how SPY volatility does not necessarily correspond with VIX volatility. This study shows that volatility itself does not correlate highly with XIV price and in fact displays a distinct lag..
Then let's look at XLE, the energy sector, for which over 90% of traders currently have a bearish view. The latest issue of Modern Trader had 10 articles on the oil sector and not one was bullish.
The volatility peaks just don't work reliably for XLE.
Then there's the financials,,,XLF....a sector we might expect to correspond with SPY volatility..but this also turns out to be a low odds game. We do see a fair degree of volatility peak/selling correlation but the intrinsic volatility of the sector itself tends to muddy the waters a bit.
Finally gold, not a sector but a widely perceived inflation hedge. Needless to say a quick look at this chart pair should make you dismiss forever any thought of trading these volatility peaks.
