Sunday, May 13, 2007

VIX Off 0.01 on Week; VWSI Holds at Zero

The VIX fell a penny last week, keeping the VIX Weekly Sentiment Indicator (VWSI) stuck on zero for the third week in a row. History tells us that four of the last five times the VWSI has closed at zero for three or more consecutive weeks, the VIX continued to drift lower in the weeks that followed. The fifth time was a string of five weeks in a row ending in March 2006; after five additional quiet weeks, the Fed raised rates on May 10, 2006 and set in motion 2 ½ months of high volatility. I am making no predictions at this point in the game, but I can certainly understand those that are using the VIX for portfolio insurance or buying some speculative VIX calls.

(Note that in the above temperature gauge, the "bullish" and "bearish" labels apply to the VIX, not to the broader markets, which are usually negatively correlated with the VIX.)

Wine pairing: For an inexpensive Rhone blend recommendation, I point the reader to wines highlighted in previous posts: Robert Hall’s Rhone de Robles and Tablas Creek’s Cote de Tablas Blanc; the contrarian favorite from Spain, Wrongo Dongo; Oakley Five Reds; and The Stump Jump from Australia. If you are looking for additional ideas, you might want to check with the Rhone Rangers.

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