Monday, August 27, 2007

Another Look at the VIX:SDS Ratio

Back on August 10th, when the markets were testing the first set of lows, I toyed with several indicators that I thought might help me better separate fear from volatility. I published a 10-day chart of one of those, the VIX:SDS ratio.

I have been keeping an eye on this ratio during the past 2 ½ weeks and noticed that the extreme reading of .633 it did an excellent job of flagging the recent market bottom. I am still not sure how useful the VIX:SDS ratio may be going forward, but I thought a six month chart might be interesting analytical fodder for those who like to contemplate such matters. As always, comments are welcome.

As a quick reminder, SDS is an ETF that is intended to track at 2x the inverse of the SPX. More information is available from ProShares.

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