In the 17 ½ years of VIX data, the VWSI has never managed register extreme negative reading two weeks in a row…until now. With the VIX spiking to 24.15 on Friday, down 0.02 for the week, the VWSI managed to end the week at -9, just one tick higher than the maximum -10 reading of a week ago. The old record for two consecutive weeks was a rather paltry sounding -6 and -8, which spanned the weeks ending August 28 and September 4, 1998, at the height of the Russian financial crisis.
So while a week ago I spelled out the historical context that argued forcefully for a mean reverting VIX drop this past week, clearly this week’s sideways movement represented another unprecedented turn of events for the VIX. In spite of this, I still anticipate that the VIX will shed some 15-20% in the coming week. If the VIX goes up again this week, then it is time to tweak the VWSI model and/or accept the fact that we are in uncharted volatility waters.
To put things in perspective from a VWSI standpoint, if the VIX holds steady this week, we will probably end the week with a VWSI of about -2. On the other hand, if the VWSI is to remain in the -9 to -10 range for a third consecutive week, it will take a VIX of at least the high 20s to pull that rabbit out of the hat.
(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: After two weeks of heightened volatility, I would be hard pressed to find fault with someone who is still drinking some of the ports from last week. A VWSI of -9, however, calls for a change of pace. What better change of pace then to turn to a varietal that was almost completely wiped out, only to stage a recent comeback over a century later on another continent. I am talking about carmenere, a grape whose rediscovery and revival in