After a classic mean-reverting snap back last week, the VIX Weekly Sentiment Indicator (VWSI) took more of a meandering approach in the most recent week, registering only a -3 reading following Tuesday’s 30% spike and a -4 on Wednesday, when the VIX topped out at 21.25, a reading not seen since June 2006. While technically any reading below zero has to be considered to be somewhat bearish for the VIX, the current -2 reading is still within the -3 to +3 neutral zone, where I do not consider the statistical edge and risk/reward profile of the VIX to warrant taking either a long or short position.
At a little less than 4% over the VIX’s 10 day SMA of 16.18, it is difficult to make a case that the VIX is over or undervalued at current levels. It is worth recalling that the VIX tends to fizzle on Fed Days and almost never spikes 10%, so it is particularly difficult to make the case for being long the VIX going into the upcoming Fed announcement. For those looking to trade the VIX, this is a good time to be patient and wait for better setups.