Steen Jakobsen, Saxo Bank: "One Guaranteed View: Volatility will go up significantly"

Steen Jakobsen, the chief economist for Saxo Bank, is frequently quoted by Mish.  The latest installment is here.  As a TVIX long, the part of it that I am most interested in is this:

Simple Man's View

• One Trading View: Fixed income will outperform all assets. US 10-Year treasury yield will drop under 1.5% by 2015 Q3
• One Economic View: Disinflation/deflation will be catalyst for asset sell-off
• One Timing View: Q2/Q3-2015 low this cycle for all indicators
• One Guaranteed View: Volatility will go up significantly

Out of those bullets, the last one is most important to me: volatility will increase no matter what.  Steen thinks so.  Mohamed El-Erian (ex CEO of PIMCO) thinks clearly thinks so as you can gather from the recent article entitled "El-Erian: October volatility is a preview of what's ahead".

Gee folks, what happened in October?  Oh, that's right, the VIX and all VIX derivatives skyrocketed. Below is the actual volatility index.  If my wave count is correct, I think what we are looking at here is a large first wave up forming which started in July.  This first wave up is in the form of an expanding wedge which will likely throw over the 5th wave as shown.  The normal amount of throw over for this kind of move would take the VIX to around 44.  Won't it be interesting if that's where it ends up?

In any case, if we see this then we have to expect a big a-b-c pullback to the 38.2, the 50 or the 61.8% fib.  I would not ride it back down!  I would bail out while it is in throw over territory and then look for those 3 waves back down.  In an extreme case, the level of the prior 4th could be hit which is about 11, so as you can see, during this market roll over phase (which is taking months to play out), buy and hold of TVIX can be a frustrating affair.  But once wave 3 up begins then buy and hold will become a much better strategy for most people until wave 3 is over.

OK that's the actual VIX which you cannot trade.  TVIX, which I am trading for now (but am considering a swap to UVXY because of a recent comment by reader "TJ"), is below.  My target price for this wave is $8.80 in the 5th wave throw over.  Pay no attention to the fact that 88 is double 44 or that the low was 2.20 which is half of 4.40.  If this occurs it will all be simple coincidence....

In any case, the pullback will likely be red, green or blue corresponding to 38.2, 50 and 61.8% fib.  Again, the wild card would be a lovely trip all the way back to the bottom which, for anyone who bailed during the throw over, will simply get to double dip on the coming 3 bagger.