With the VIX a hair under the magic 30 barrier and Hurricane Dean taking aim at the Yucatan instead of the Texas refineries, we have almost surely seen a top in volatility. That being said, the VIX managed to close up on a weekly basis for the fifth time in the past six weeks, finishing the week at 29.99, up 6% (1.69) from the previous week. Is normalcy really just around the corner? My guess is that it is not too far away. The new high water mark in the VIX is now 37.50, which is the highest reading since October 2002, when the markets were just beginning to bottom, before turning up for the current five year bull run.
The VWSI continues in uncharted waters at -4 this week, but with the VIX already 25% off of the 37.50 spike top, there is finally evidence that the laws of gravity have been reinstated, at least temporarily. As the graphic below shows, the VWSI is now mildly bearish on the VIX, with mildly bullish implications for the overall markets. If you consider the strong possibility that the markets can no longer dwell on options expiration, a Fed with it’s head in the sand, or Hurricane Dean threatening the Texas-Louisiana oil infrastructure, then I suspect the coming week will more likely bring bullish surprises than bearish ones, especially given that it is a relatively slow week on the government data front.
I also suspect most pundits will wait until after Labor Day before declaring that it is safe to go back in the water, but I tend to think that excessive caution will likely result in missing out on the first big leg of a post-panic bounce.
Wine pairing: A VWSI of -4 comes along only a couple of times each year, so it is a good excuse to get off of the beaten varietal track. Also, it never hurts to diversify one’s portfolio internationally. With those thoughts in mind, I am recommending some tempranillo for a VWSI of -4. Tempranillo is the classic Spanish red grape that has long dominated the wine scene in Rioja and Ribera del Duero.
Americans looking to dive into tempranillo should recognize that the grape is not widely planted in the
To read more about what is going on with this grape in