As the VIX heads towards 17 today and into overbought territory our work continues on the MVP (Mosaic Volatility/Price charts. Some of the recent refinements are shown below in a study of DIA (DOW30 proxy ETF). Although it theoretically reflects DOW price dynamics the DIA is actually an anemic little ETF with only marginal daily volume and more surprisingly perhaps not one member firm of HedgeCo, (a consortium of some 1400 hedge funds) owns a single share of DIA.. They own plenty of SPY, IWM and QQQ but regarding DIA...nada.! Why DIA is shunned by most funds is a story in itself but suffice to say that since it includes only 30 stocks it is the target of massive intraday manipulation by large prop shops...both domestic and foreign and therefore generally hated by risk managers, Nevertheless, if we play the long game using MVP it is clear that there are occasional high odds vesting situations when the ATR and PCL volatility peaks achieve signal threshold levels. The MVP approach is completely different from the standard M1/M3 ranked rotation methodology and the MVP signals can be few and far between, depending on the ETF or stock under study. When generated, however, the signals are consistently reliable, which is what makes them attractive.
Note that the green dashed vertical tracking line is NOT vertical...it is offset by 4 days from the ATR to the PCL to accommodate the leading/lagging behavior of the 2 signals..
Tomorrow we analyze various volatility/price correlations in more detail.
