Sunday, June 17, 2007

All Quiet on the VWSI Front

After two weeks of head fakes, the VWSI has settled back to an even zero reading, apparently less impressed by this week’s 16.67 high than the 17.09 peak reading from the previous week.

For those who may not have been following the VWSI here since its mid-February inception, I use this indicator to help predict the price of the VIX in the coming week. The good news is that the VWSI also has a solid track record of predicting the VIX 2-4 weeks out, though as with most crystal balls, with each week into the future it is applied, the margin of error increases substantially.

I mention all this because in the last couple of days, I have been going back and forth with Adam Warner at Daily Options Report about the likelihood of seeing a sub-10 VIX during the new options cycle that ends on July 20th. I posted a summary of our respective thinking on Friday and bring it up again here because I am fairly certain that you will not find anyone else who is making public predictions about where the VIX will be 25 trading days out. Hell, I thought I was going out on a limb just using the VWSI to look out 5 days…

(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, I recommend: Oakley Five Reds; Robert Hall’s Rhone de Robles and Tablas Creek’s Cote de Tablas Blanc; Wrongo Dongo, the contrarian favorite from Spain; and The Stump Jump (I prefer the white over the red) from Australia. If you are looking for additional ideas, I encourage you check out the Rhone Rangers.

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