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Charlie Munger, new oil VIX and my thoughts
By Rob | August 12, 2008
The market is strutting along in what I see as a bear market rally. However, we are watching the levels because what appears as a rally might transform into a full-blown bull run, if commodities and oil keep going down, which i don’t expect to continue for too long. Here is a chart for gold from Trader Mark:
Gold is also falling because it just needed to in order to stay in a long-term bull trend. It is also falling because of the stronger dollar in the past weeks. Equity gains during dollar bull markets (20% rally preceded by a 20% decline) are much greater than dollar bears (20% decline preceded by a 20% rally).The average return of the S&P 500 during dollar bull markets is over 80%. During dollar declines, the average return is less than 20%.
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This is the latest must-see interview with Charles Munger, the guy behind Warren Buffett and his partner in the establishment. There is so much wisdom here, I can hardly write more about it.
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For those traders interested in trading or understanding oil, please start tracking the Crude Oil VIX index which the CBOE realeased recently. On days when oil prices have a big swing, the index, called the Crude Oil VIX, tends to respond dramatically. It spiked 25.8% on June 6, based on historical data, when oil shot up $11. When crude tumbled for four sessions in a row last month, the index jacked up 13% and hit a record on July 17. Not surprisingly given the wild swings in crude recently, the volatility index has surged 66% since last May, based on historical figures. The index is based on the weighted prices of all out-of-the-money but non-zero options on the U.S. Oil Fund, the biggest oil exchange-traded fund.
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