Saturday, May 26, 2007

What Volatility? VWSI Back at Zero

Wednesday at Thursday may have felt like a fairly dramatic change in direction for the markets, but for the fourth week out of the last five, the VIX Weekly Sentiment Indicator (VWSI) sits at an even zero. While the VIX closed the week at 13.34, up 0.58 from the previous week, the VIX is sitting almost directly on top of its 10, 20 and 50 day simple moving averages, which are currently showing readings of 13.49, 13.38, and 13.32, respectively.

The recent high correlation between the SPX and the VIX may suggest that historical precedent is siding with a larger correction in the equity markets, but I am not placing any volatility-related bets at this time.

Sometimes it is better just to watch and wait for better opportunities.

(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, check out: 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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