Before we were so rudely interrupted by all the hullabaloo surrounding Ms. Yellen's definition of a "considerable" amount of time (now known to be six months), we were looking at how the VIX could be used to help identify decent entry points for traders looking to get long the U.S. stock market. And since the market still appears to be trying to make up its mind which way things will go from here, this appears to be as good a time as any to expand on the idea of using the VIX to "buy the freaking dips."

As we discussed earlier in the week, a simple (okay, really simple) approach to identify turning points in the market after a correction is to wait for the VIX to first spike and then reverse lower.

Below are the charts we used as Exhibit A. No, this is not a sophisticated approach. But hey, it DOES seem to do a decent job.

S&P 500 Daily

VIX Daily

If you will recall, at the end of Wednesday's report, we promised to apply some fancy math to this approach to see if we couldn't come up with a more consistent, more quantifiable way to use the VIX to help you BTFD. So here goes.

But First, Some Caveats

Before we get started, there are a couple caveats worth noting. First, it is important to recognize that the character of the stock market has changed over the last few years. Blame it on Virtu, Getco, Citadel, Goldman or JPMorgan and their algos if you'd like. But there should be little argument that both the volatility and the speed with which moves now occur have increased.

Next, too many investors believe that all stock market indicators produce strong buy AND sell signals. This is simply not true. Some indicators provide excellent buy signals but lousy sell signals, and vice versa. So, please don't think that any single indicator can provide you with accurate signals to move in and out of the markets. In this case, we are looking at only the buy side of the indicator - for good reason.

Finally, it goes without saying that investors should never use any indicator in a vacuum. No, the game is a wee bit harder than that. The trick is to find a quiver full of weapons to use, and then now which arrow to use and when.

Our VIX Buy Signal

With the necessary disclosures and disclaimers out of the way, let's get to our buy signal. The idea is to use the VIX and its 20-day moving average. Simple enough, right? Next, we need to calculate the number of standard deviations the VIX is from its 20 dma. A little tougher, but a quick Google search should do the trick.

So, when the VIX first moves more than two standard deviations from the 20-day, and then reverses below the two standard deviations line, a buy signal is flashed.

In English, what this tells us is that the market has experienced a correction and a corresponding spike in the VIX. Then, when the VIX moves back below the two standard deviation line, it tells us that volatility is retreating. This, in turn, means that the correction in stock prices may have run its course.

The Stats

Since 2011, there have been 21 "initial" buy signals given. Note that this indicator often produces "double-barreled" buys as the VIX oftentimes spikes, retreats and then spikes again. For our purposes, we are using only the first buy signal.

Of those 21 buy signals, 17 have led to higher prices in the ensuing weeks on the S&P 500. If my calculator is correct, this means that when our VIX Buy Signal occurs, the odds of success are 81 percent. Not bad, eh?

Looking at the stats back to 1995, 5 days after an initial buy signal the average gain on the S&P is +0.27 percent, which is exactly 50 percent better than the average gain of +0.18 percent for all five-day periods.

Two weeks after the buy signal, the gains in the market are again about 50 percent better than average (+0.53 percent vs. +0.35%). And four weeks later, the S&P's average gain has been +1.11 percent, which is 61 percent better than the average gain of 0.69 percent for all 20-day periods.

When eye-balling the chart of this indicator, it is clear that this indicator has been quite good over the past two years. In short, the buy signals have consistently provided investors with very good opportunities to BTFD's.

The Latest Signal

The latest buy signal was flashed on March 17, 2014 (the one before that occurred at the end of January). So, while there are never ANY guarantees at all in this business, this indicator does seem to tell you that the odds favor the bulls for the next few weeks.

To be sure, the recent dip wasn't much and of course there is a chance that it isn't over. However, our VIX signal did flash an initial buy. And with 81 percent odds, you couldn't be blamed for buying this little dip.

Publishing Note: I am traveling early next week and will publish morning commentaries as time permits.

Looking for Guidance in the Markets? We can help...

The Daily Decision: If you want a disciplined approach to managing stock market risk on a daily basis - Check the "Daily Decision" System. Forget the fast money and the latest, greatest option trade. Investors first need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets. The Daily Decision system was up 30.3% in 2012, is up more than 25% in 2013, and the system sports an average compound rate of return of more than 30% per year.

The Insiders Portfolio: If you are looking for a truly unique approach to stock picking - Check out The Insiders Portfolio. We buy what those who know their company's best are buying - but ONLY when they are buying heavily! P.S. The Insiders is up over 30% in 2013 and has nearly doubled the S&P 500 since 2009.

The IRA/401K Advisor: Stop ignoring your 401K! Our long-term oriented service designed for IRAs and 401Ks strives to keep accounts positioned on the right side of the markets. This is a service you really can't afford not to use.

The Top 5 Portfolio: We keep things simple here by focusing on our five favorite positions. This concentrated stock portfolio employs a rigorous custom stock selection approach to identify market leaders. Risk management strategies are built in to every position.

All StateoftheMarkets.com Premium Services include a 30-day money-back guarantee!

Looking For Money Management Help?

If you are looking for help with money management, check out Heritage Capital Management's Active Risk Manager Service - or call Heritage for more information at (630) 250-4700.

ALL NEW: The next generation of the Daily Decision system is now available to clients of Heritage Capital. The new and improved approach (which is not available in subscription form due to the complex nature of trading the program) utilizes swing trading during neutral market environments, multiple indices for long positions, incremental moves in and out of the market, multiple managers and multiple strategies - with the overall goal being reduced volatility and a smoother ride. Contact Heritage for details at (630) 250-4700.

Turning To This Morning... Lawmakers in Washington take note. When you play nice, good things happen. Fitch affirmed the AAA rating for U.S. last night and changed its outlook to "Stable" from Ratings Watch Negative. Although there isn't much news to report other than the U.S. and Russia trading various sanction, Asian markets were largely positive and Europe bourses are higher save Italy. As usual, the U.S. futures are following Europe in the early going and point to a higher open at this stage of the day.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
- Japan: Closed
- Hong Kong: +1.20%
- Shanghai: +2.73%
- London: +0.63%
- Germany: +0.48%
- France: +0.35%
- Italy: -0.04%
- Spain: +0.19%

Crude Oil Futures: +$0.47 to $99.37

Gold: +$11.10 at $1341.60

Dollar: higher against the yen, lower vs. euro and pound.

10-Year Bond Yield: Currently trading at 2.776%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +7.14
- Dow Jones Industrial Average: +53
- NASDAQ Composite: +18.68

Thought For The Day...

People too weak to follow their own dreams will always find a way to discourage yours --Unknown

Are you getting all the market research you need?

Remember, you can receive email alerts for more than 20 free research report alerts from StateoftheMarkets.com including:

• State's Chart of the Day - Eeach day we highlight a top rated stock with a positive technical setup
• The Risk Manager Report - Stay in tune with the market's risk/reward environment
• The “10.0” Report - These are the REAL best-of-breed companies
• The Insiders Report - See what the people who know their company's best are buying
• ETF Leaders Report - Looking for the top performing ETF's? You've come to the right place.
• The SOTM 100 Portfolio - The top rated stocks in each market sector
• State's Market Models - Each week we quantify the "state of the market" with a series of models
• The Focus List - Think of the focus list as your own private research department. We do all the work and highlight our top picks each trading day

Our Mission Statement:

At StateoftheMarkets.com, our goal is to provide everything you need to be a more successful investor: The must-read headlines, market commentary, market research, stock analysis, proprietary risk management models, and most importantly – actionable portfolios with live trade alerts.

Finally, we are here to help - so don't hesitate to call with questions, comments, or ideas at 1-877-440-9464.

Follow on Twitter: @StateDave

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.