I Just Can’t Get Enough: Philippine Phisix Emits Intensely Bullish Signals

And when it rains

You`re shining down for me

I just can`t get enough

I just can`t get enough

Just like a rainbow

You know you set me free

I just can`t get enough

I just can`t get enough

-I Just Can’t Get Enough, Depeche Mode

Last week I pointed out that signs of market divergences in the global markets and a seeming convergence of many local indicators pointed to a possible sustained momentum for a rally.

I wrote[1]

All these factors, particularly chart formation, rallying peso, improving market breadth, bullish local investors, appears to have converged to signify possibly as a significant tailwind in favor of the bulls.

With lady luck seemingly smiling at me, events have proven this short term observation to be stunningly accurate.

The Phisix (black candle) makes an all important watershed with a rousing breakout (light blue circle) from the massive 8-month reverse and shoulder formation (orange arcs).

In Bullmarkets, Everyone is a Genius

Before I proceed, I’d like to make additional comments on what I think will be forthcoming mindset that will dominate the equity markets as the bullmarket flourishes.

Bullmarkets create the impression of infallibility, smugness, invincibility and expansive risk appetite. That’s because erroneous or defective reasoning, beliefs and or strategies will be validated by prices actions regardless of the soundness of the imputed causal relationship. In short, luck determines most of successes.

Yet most will get immersed with self-attribution bias[2], particularly self-serving bias[3], where people attribute successful outcomes to their own skill, but blame unsuccessful outcomes on bad luck.

In convention, many will argue that ‘fundamentals’ will reflect on price actions. Others will argue that chart trends will serve as the critical factors in establishing fundamentals.

Both these groups essentially argue from the perspective of historical determinism, where past performances have been assumed to determine future outcomes.

Black Swan author Nassim Nicolas Taleb exposes the shortcomings of such presumptions; Mr. Taleb writes[4], (emphasis added)

When you look at the past, the past will always be deterministic, since only one single observation took place. Our mind will interpret most events not with the preceding ones in mind, but the following ones. Imagine taking a test knowing the answer. While we know history flows forward, it is difficult to realize that we envision it backwards.

Their fundamental mistake is to overestimate causality and oversimplify market’s actions as easily explainable from superficial perspectives.

Further, these groups will also fall captive to the reflexivity theory where expectations and outcomes would play a critical self-reinforcing feedback mechanism

The aspect where I agree with Mr. George Soros[5] is this theory, (bold emphasis mine)

The structure of events that have no thinking participants is simple: one fact follows another ending in an unending casual chain. The presence of thinking participants complicates the structure of events enormously: the participants thinking affects the course of action and the course of action affects the participants thinking. To make matters worst, participants influence and affect each other. If the participants’ thinking bore some determinate relationship to the facts there would be no problem: the scientific observer could ignore the participants’ thinking and focus on the facts. But the relationship cannot be accurately determined for the simple reason that the participants’ thinking does not relate to facts; it relates to events in which they participate, and these events become facts only after the participants’ thinking has made its impact on them. Thus the causal chain does not lead directly from fact to fact, but from fact to perception and from perception to fact with all kinds of additional connections between participants that are not reflected fully in the facts.

In short, hardly anyone understands that such reflexive feedback loop process, which functions as the psychological backbone or stepping stones for boom bust cycles, are shaped by actions of policymakers whose political goal has been to sustain perpetual quasi booms.

As the great Austrian economist, Ludwig von Mises writes[6], (bold highlights added)

Nothing harmed the cause of liberalism more than the almost regular return of feverish booms and of the dramatic breakdown of bull markets followed by lingering slumps. Public opinion has become convinced that such happenings are inevitable in the unhampered market economy. People did not conceive that what they lamented was the necessary outcome of policies directed toward a lowering of the rate of interest by means of credit expansion. They stubbornly kept to these policies and tried in vain to fight their undesired consequences by more and more government interference

The effect of inflationism is to distort economic or business calculations. This will further cause massive misallocation of capital or an inducement to excessive speculations which subsequently gets manifested on the marketplace, including the stock markets via a boom bust cycle.

Bottom line: Bull market geniuses will fall short of the recognition and comprehension of the true drivers of the marketplace. They would continue to latch on cognitive biases backed by technical gobbledygook (‘macro-micro fundamentals’, political-economic ideology, mechanical charting) to argue for their cases. When the bubble pops all these arguments evaporates.

‘I Told You So’ Moment on Divergences

This leads us back to the significant chart breakout by the Phisix above.

An important reminder is that while charts are representative of past actions of the market, patterns alone do not suggest of the reliability of statistical precision of repetitive occurrences for reasons cited above, such as analytics tenuously derived from historical determinism.

That’s why charts must work in consonance with other indicators. Importantly, charts must be grounded on theory as basis for such prognosis. In short, charts should only play the role of guidepost in measuring theory. It would serve as a grave mistake to interpret charts as the foundation for theory.

Friday’s upside pop (green circle) beyond the reverse head and shoulders resistance levels may have signaled the second wind or the next significant upside leg which may bring the Phisix to the 4,900-5000 level (this implies returns of 12-15%) to the yearend.

Of course, returns will vary according to the actions of specific issues but the returns of the Phisix would essentially reflect on the average of the returns from the 30 elite issues included in the local basket bellwether.

Unfortunately, the Philippine Stock Exchange does not have an Exchange Traded Fund (ETF) listed locally that may reflect on the actions of the Phisix. Nevertheless for residence abroad, the first Philippine Exchange Traded Fund, the iShares MSCI Philippines Investable Market Index Fund (EPHE) has been listed since September of last year[7] One can take advantage of the possible Phisix rally through the EPHE.

The breakout of the Phisix appears to be validated by the actions of the Philippine Peso (red candle) where the USD-Peso chart echoed on an equally sharp downside move (green circle) for the US dollar. The Peso closed at 43.175 on Friday for a .6% gain over the week.

One would note that while the Phisix exudes a bullish backdrop, the Peso’s chart has exhibits what chartists call as a “whipsaw” or a chart pattern failure or in stockcharts.com’s definition “when a buy or sell signal is reversed in a short time”[8]

Early this month, the US dollar broke to the upside against the Peso, but this breakout was essentially expunged by this week’s rally in the Peso (light blue circle).

This should be a good example how charts can’t be used as a standalone metric.

The tight Peso-Phisix correlation suggest that for the time being, the Phisix appears to lead the price actions of the Peso, as I previously noted[9]

currency traders must take heed of the activities in the PSE as part of their studies from which to derive their predictions

Again this has been premised mostly on the favorable relative demand for Peso assets, aside from the lesser inflationary path by the Peso based on the supply side.

This Phisix-Peso correlation appears as being bolstered by a spike in Foreign buying which turned positive this week (red circle).

Net foreign buying accounted for 44.46% of this week’s peso volume traded at the Philippine Stock Exchange.

Divergent external policies are likely to continue to drive foreign funds into local shores.

Market Internals Swings To Positive Zone

As an idiom goes, ‘The proof of the pudding is in the eating’.

All sectors posted gains this week with Industrials and Financials taking the leadership from the mining sector (see graphic above).

Even from the midterm basis, All sectors have been on an uptrend (Financials, Industrials and Holdings-left column; Property, Services and Mining and Oil-right column) despite the recent corrections.

What Friday’s sprightly activities did was to magnify on these gains.

Said differently, while Friday’s rally may have hallmarked a significant and symbolical turnaround, in reality, most of the sectors have already been on an upside creep way before Friday, most notably coming from the troughs in mid June.

Further, this interim rally seems to reinforce the medium term trend dynamics.

“I just can’t get enough” is a song by new wave band called Depeche Mode during the early 1980s. To borrow from Depeche Mode, I just can’t seem to get enough to further show how markets have been validating our expectations.

The advance-decline ratio (left window) has oscillated to favor of the bulls, while issues traded daily has turned to the upside backed by a seeming double bottom (red) and an interim ascendant trend.

A rising Phisix will induce more trades that will be reflected on volume expansion. That’s how reflexivity theory incentivizes people: As prices go higher more people will start chasing prices and higher prices will be read as improvements on economic and corporate output which will further lead to rationalizing of price chasing dynamics, hence, the feedback loop.

Also, an ascendant Phisix will tilt the balance of ‘frequency’ of the advance-decline differentials mostly to the positive or advancing side. So the advance decline chart would show denser on the positive column where advancing issues dominate.

From Divergence to Convergence

The current divergent phenomenon should not be misread as decoupling. We may see another series of re-convergence in global stock markets.

The US S&P 500 (SPX), Europe’s Dow Jones EURO STOXX 50 (STOX5E), Asia’s Dow Jones Asia/Pacific Index (P1DOW) and the Emerging Markets’ (MSEMF) MSCI Emerging Markets Free Index (EOD) have all bounced strongly from last week (green arrows).

With global equity markets on a heady upside explosion following the ratification of the Greece austerity vote which paves way for the Greece Bailout 2.0 (estimated at 85 billion Euros[10]), we should expect the previously divergent international signals to transition towards re-convergence.

Global markets are being flushed with liquidity once more. This time the flow will not only be coming from the Greece bailout 2.0, but likewise from the proposed bailout by Japan of the embattled nuclear industry, which would signify as an indirect bailout of her Banking industry which has massive loan exposure on the former[11].

The wave of bailouts appears as being intensified by increasing expectations for the reinstitution of asset purchases or Quantitative Easing by the Bank of England[12] (BoE)[13]. Guess who would be next?

Again the serial bailouts, divergent monetary policies by developed and emerging markets, negative real interest rates (here and abroad) and artificially low interest rates represent as key contributors to the prospective extension of the bullish momentum.

Of course, momentum won’t go straight forward, there will be interim or intermediate corrections. Yet these corrections should be seen as windows of opportunities to position.

---

[1] See Phisix: Divergences Point to a Bullish Momentum, June 26, 2011

[2] self-attribution-bias.behaviouralfinance.net, Self Attribution bias

[3] Wikipedia.org Self-serving bias

[4] Taleb Nassim Nicolas Fooled by Randomness, The Hidden Role of Chance in Life and in the Markets Random House 2005, p.56

[5] Soros George The Alchemy of Finance, John Wiley and Sons, p. 318

[6] Mises, Ludwig von, Free Banking and Contract Law, Chapter 17 Human Action, Mises.org

[7] Rowland Ron iShares Gives U.S. Investors Their First Philippines ETF, October 1, 2010, Seeking Alpha

[8] Stockcharts.com Glossary - W

[9] See ASEAN’s Equity Divergence, Foreign Fund Flows and Politically Driven Markets, June 5, 2011

[10] Bloomberg.com Euro Area Backs Greek Aid, Looks to New Bailout, July 03, 2011

[11] See Japan Mulls More Bailouts for the Nuclear Industry (and Mega Banks) June 28, 2011

[12] Express.co.uk SOFT PATCH CLOUDS OUTLOOK, July 3, 2011

[13] Bloomberg.com BIS Says Central Banks Need to Start Increasing Rates to Contain Inflation, June 27, 2011

More Evidence Of Stock Market Tidal Flows

If you read mainstream reports, they are distilled to make the public believe that stocks are "fundamentally" driven.

Yet squaring "fundamentals" with market actions would seem like describing circle as square--they simply won't fit!

Instead, we've been asserting that inflationism and inflation psychology has been the major forces behind the gyrations of stock market pricing.

I've called this the Machlup-Livermore model. A model which combines the empirical accounts of the legendary trader Jesse Livermore, who deals with market psychology, and the theoretical insights of inflation from economist Fritz Machlup.

The recent episode of stock market corrections abroad seem to strengthen our case.

According to Bespoke Invest (chart courtesy of Bespoke too),

``Today's drop to new correction lows has once again put the percentage of stocks in the S&P 500 below the 10% level (currently 7%). Prior pullbacks during the runup from the March 2009 lows only saw declines in this indicator to around 20-25%, and they didn't stay down there long. The current correction has seen the indicator remain in the single digits and teens for some time, and the bounce we got two weeks ago didn't take the indicator back above the 50% level. Clearly we're in a period that's testing the resolve of bulls, and multiple days like today cause more and more bulls to throw in the towel."

In short, most stocks move in the general direction of the market, which hardly accounts for micro-"fundamentals".

A Fear Driven Meltdown

``A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense.”-Warren Buffett, Buy American. I Am.

As we pointed out in Another Grizzly Bear Transforms To A “Cautious Bull”: Jeremy Grantham of GMO former super bear Jeremy Grantham turned bull has been precise about the market’s mean reversions and market overshooting.

This implies that yes, even if the market is already “cheap”, there is that prospect or risk for markets to always overshoot to the downside in as much as markets can overextend upwards. It is plainly called momentum. Since markets over the short term are mostly about emotions, investing today should translate to having a time horizon expectations of at least 12 months.

Take a look at the inflation adjusted chart of the US Dow Jones courtesy of chartoftheday.com

Figure 2: chartoftheday.com: Dow Jones inflation adjusted

The above chart indicates that support levels have broken down from the 2002 levels and could likely see more downside action. This chart squares with the reaction in the Nikkei chart above suggesting for a little more downside action. But from our perspective any ensuing fall could likely signify as a “selling climax”.

Besides, considering the magnitude of the selloffs, it cannot be discounted that markets can always make sharp countercyclical reactions, which means we can’t discount dramatic rebound anytime from now. Yet short term rebounds do not suggest the end of the bear market until the technical picture materially improves.

As Societe Generale’s Albert Edwards recently wrote, ``But cheap(er) markets will not alone generate a rally. The technicals need to be aligned for that to happen. Notwithstanding the forced liquidations now taking place amidst the wreckage of catastrophic Q3 hedge fund performance link, we see the conditions as ripening for a decent bear market rally.” (emphasis mine)

The reality is that markets or even economies always operate in cycles. And the present bear market developments suggest that this has yet to reach its full maturity before a bottom can be found.

So we are delighted to see a growing band of former contrarian bears converting into contrarian bulls. Aside from Jeremy Grantham, known perma bears like Warren Buffet, Dr. John Hussman, Pimco’s Mohamed El-Erian, Societe Generale’s Albert Edwards and James Montier are some of the prominent names that have began to see “value” in markets today.

Figure 3: Pimco: Massive Risk Aversion and Cash Levels

The point is that while none of them is calling for a market bottom, as none of them are known market timers, although they see the present the market activities as opportunities to steadily accumulate in anticipation of future recovery.

They understand that the present fear levels are indicative of near market bottoms as shown in Figure 3 courtesy of Pimco’s Mark Kiesel. Where market psychology has reached panic levels (left) and equally reflected in massive cash hoards (right).

Vanishing Hedge Funds

So what appears to be the source of the present worries?

With many credit spreads seen improving except for corporate bonds, the present concerns have been directed to mainly three areas, namely, hedge funds, emerging markets and fears of global economic recession.

As we noted in It’s a Banking Meltdown More Than A Stock Market Collapse! ``So as hedge funds continue to shrink from redemptions, TrimTrabs estimates a record $43 billion in September-liquidity requirements, margin call positions, maintaining balance sheet leverage ratio or plain consternation could risks triggering more negative feedback loop of more forced liquidation.”

The unraveling motions of investor redemptions appear to be in full gear where the $1.8 trillion industry is at risk of substantial contraction. According to a report from Bloomberg, ``U.S. hedge-fund managers may lose 15 percent of assets to withdrawals by year-end while their European rivals shed as much as 25 percent, Huw van Steenis, a Morgan Stanley analyst in London, wrote yesterday in a report to clients. Combined with investment losses, industry assets may shrink to $1.3 trillion, a 32 percent drop from the peak in June.” That’s $500 million of asset liquidation if such projections turn to reality.

Some experts have opined that the sheer force from the stampede out of hedge funds may compel governments to even suspend markets. According to another report from Bloomberg, ``Nouriel Roubini, the New York University Professor who spoke at the same conference, said hundreds of hedge funds will fail as the crisis forces investors to dump assets. ``We've reached a situation of sheer panic,'' said Roubini, who predicted the financial crisis in 2006. ``Don't be surprised if policy makers need to close down markets for a week or two in coming days.''

Emerging Market Shoes Drop

Next we have emerging markets.

Countries which had large current account deficits as % to the GDP, those that relied heavily on foreign and or short term borrowing or have been internally leveraged have endured a beating.

Figure 4: Danske Bank: Emerging Market Credit Default Swaps

For instance, Credit Default Swaps which indicates the cost of insuring sovereign debts against a default have spiked for several countries such as Argentina, Pakistan, Ukraine, Iceland, Ecuador, Venezuela and Indonesia as shown in Figure 4 (see right-1 month change of 5 year CDS). This means that the jittery environment has led investors to see higher risks of prospective government default on their debts. Argentina’s proposed nationalization of pension funds seems to underscore such distress.

And the spate of heavy market selling in the currency and debts markets has likewise caused a spike in inflation levels of some EM economies. So while some countries have been suffering from “deflation” symptoms (mostly advanced nations), others are seeing higher inflation rates due to the lack of access to funding and falling currency values. Hence the unfolding crisis has produced divergent impacts and is unlikely deflationary as some contend.

Korea which suffered from a spectacular market collapse last week (Kospi down 20%!) is said to bear the typical emerging market infirmities, according to Matthews Asian Fund ``For many, the collapse of the won is a sore reminder of the Asian financial crisis of about a decade ago. It highlights some of the weaknesses of regional capital markets—bond markets are underdeveloped and there is consequently little long-term funding for corporations as well as an over-reliance on short-term debt. In addition, Korean bank loans are about 30% greater than their deposit base, which means that the banking system has been more reliant on U.S. dollar-denominated funding.”

Although foreign currency rich neighbors of Japan and China have been reported as in a standby mode to provide assistance. In fact, the region is reportedly in a rush to put up a contingency fund ($80b) aimed at assisting neighbors in distress. So it isn’t just a function of IMF doing rescue efforts, foreign currency rich neighbors appear to be doing the same today.

Aside, the South Korean government extended a $130 billion rescue package-guaranteeing $100 billion of external debt and provision of $30 billion loans to banks. Nonetheless, these measures have not prevented foreign investors from rushing into the exit doors.

Figure 5: Danske Bank: Last Shoe to Drop

So not only has the recent credit crunch shrunk the available capital base among international banks, it also compressed investors’ appetite for emerging market investments. The recent outperformance of emerging markets finally phased into contagion side effects (see figure 5). What used to function as a “safehaven” has now caught up with the EM asset class as seen by the huge spike.

Meltdown in Commodity Markets More Fear Related

Given that many emerging markets have been enduring financial and economic turmoil, many see this as telling signs of deterioration in the global economic front enough to justify an across the board selling of commodities as oil, copper and others.

Figure 6: stockcharts.com: Commodity selloffs signs of FEAR!

But the recent behavior in the commodity markets appears to be pricing in a steep global recession if not a depression.

The meltdown has been focused on the assumption of a dramatic decline of global demand. They seem to forget that with the current credit crisis, many of the planned projects will be put on hold or shelved or cancelled, giving way to constriction of supply. If supply falls far larger than the rate of decline in demand then you end up having lack of supply thus higher prices.

Besides, commodities are not the equivalent of opaque and complex financial papers that have triggered this crisis. Commodities essentially don’t go bankrupt.

So even the commodity markets are pricing in more fear than rationality, hence you have an across the board selling of practically all asset classes except for US treasuries and the US dollar.

Albeit we are inclined to think that US treasuries could be the next shoe to drop considering the vast scale of debt issuance needed to bailout the US financial sector and the US economy.

On our part we think that the magnitude of market deterioration demonstrates exaggeration of such concerns, especially seen from our ground levels in the Philippines.

We certainly agree with Mr. Buffett that the deleveraging process has reinforced the fear psychology to the point of excessiveness. And this level of fear means opportunities for him and those with cash.

Moreover, we think that the market, functioning as a forward discounting mechanism, has already factored in the worst outcome and is pricing in fear more than fundamentals.

And when mainstream becomes afraid, this usually denotes of a bottom.

PIMCO’s Mohamed El-Erian on Emerging Markets: Focus On Fundamentals, Aggressive Policies Will Help In Time

Vetting on the wisdom of PIMCO’s Mohamed El-Erian who recently wrote about the current crisis (all highlights mine)…

Mr. El-Erian: ``Many developing countries were fortunate to enter this crisis in relatively strong shape. They had large holdings of international reserves, limited leverage and relatively low indebtedness. Policy flexibility was also considerable, as reflected in the ability to prudently use monetary and fiscal policy in a countercyclical manner. And internal consumption was picking up momentum.

``The robust initial conditions have served to partially insulate the developing world from the effects of the global financial crisis that most observers rightly classify as the worst since the 1930s. Contrary to what would be expected on the basis of the experience of the past 30 years, there has been no dramatic collapse in growth and consumption; widespread defaults have not materialized; and many governments retain their core policy credibility.”

My interpretation:

Emerging markets are stronger and more equipped today to cope with the present crisis.

There have been little signs of the prospects of a global depression.

Mr. El-Erian: ``What's more, the favorable initial conditions will provide little comfort for emerging-market equity investors. The long-term story in these markets may still look good, but investors are sitting on large losses now. Why? In major global dislocations like the one we are experiencing, fundamental drivers of value get totally overwhelmed by "technicals." Foreign investors, facing large losses at home, all scramble to repatriate their funds at the same time. The emerging-market equity door is simply not big enough to accommodate them all without a large and disorderly decline in prices.

``Provided they are sufficiently liquid and that their portfolios are not overly concentrated, investors should think twice before joining this stampede. As a rule, long-term value investors should not become distressed sellers on account of technical factors alone. They should be guided primarily by their views on fundamentals, which will once again assert themselves over time. Moreover, help is on the way. Emerging markets will be aided, albeit neither immediately nor smoothly, by the aggressive policy decisions now being taken in industrial countries.”

My interpretation:

Deleveraging, Fear and Momentum trades have basically driven EM equities to the cellar.

Investors should avoid the bandwagon or herd mentality effect and ruminate on fundamental issues instead. Those who focus on fundamentals will be promptly rewarded.

Like us, Mr. Mohamed El-Erian thinks that aggressive policy decisions by Industrial nations will help EM markets overtime. In Global Market Crash: Accelerating The Mises Moment!, we also noted ``So while today’s market has almost gutted most of the global financial markets (equities, commodities, bonds and currencies-yes newspapers focus on stocks but contagion has been across the board) as a result of massive deleveraging and stress in the global banking system, once such policies sink in or diffuse, we are likely to see divergent economic performances that should be reflected on the markets once the panic subsides.”

So we have a growing chorus of bullish contrarian gurus in a world driven by fear. The very same clique who successfully foretold of this crisis.

NEW STOCK MARKET TERMS: Expressions of Hope!

This message has been circulating in the cyberspace...

NEW STOCK MARKET TERMS:

CEO --Chief Embezzlement Officer.

CFO-- Corporate Fraud Officer.

BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

VALUE INVESTING -- The art of buying low and selling lower.

P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.

BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.

STOCK ANALYST -- Idiot who just downgraded your stock.

STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.

FINANCIAL PLANNER -- A guy whose phone has been disconnected.

MARKET CORRECTION -- The day after you buy stocks.

CASH FLOW-- The movement your money makes as it disappears down the toilet.

YAHOO -- What you yell after selling it to some poor sucker for $240 per share.

WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.

INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.

PROFIT -- An archaic word

***

When we see such sarcasm, we understand this as signifying extreme pessimism or seminal signs of soft depression.

To quote our favorite departed icon Sir John Templeton in 1994, ``Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell."

Fear Index Pointing To Tradeable Rally Ahead?

Markets are being whacked globally in the aftermath of the combined troubles plaguing the US financial industry, particularly Lehman bankruptcy, Bank of America’s buyout of Merrill Lynch, aside from the capital raising and credit rating of insurer AIG.

There seems to be so much fear in today’s market climate.

One of the popular measure of Fear is the VIX index as defined by Wikipedia, ``VIX is the ticker symbol for the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Referred to by some as the fear index, it represents one measure of the market's expectation of volatility over the next 30 day period.”

During the past year each time the VIX spiked beyond 30, the markets tend to temporarily bottom and usher in some short term “rebound” as shown below…

The blue vertical lines point to the historical “peaking” activities of the VIX index.

The temporary bottoms which it coincides with have been followed by rallies as shown by the trend lines of the S&P and the Phisix. But the important point is that the scale of past rallies have differed, of which is a very important determinant of the viability of the trade proposition.

Bottom Line: Further selling pressures could translate to “short term trading windows” for the Phisix. At the risk end, these may seem like "catching falling knives"; but given a longer term perspective, opportunities seem to present itself as buying at fire sale levels.