Sunday, October 14, 2007

VWSI Back to Zero. Was That the Bump?

In a week where Goldman Sachs hit a new all-time high while BIDU had a range of 58 points in one session, you could make the case that volatility is winding down or just warming up for the next act. Despite Thursday’s 13.3% jump in the VIX, the volatility index ended the week up only 4.8% or 0.92 points to 17.73. Still, this small bump was enough to send the VWSI back to neutral, following an unprecedented run of three consecutive high readings in the indicator.

The coming week is bound to provide considerable ammunition for both bulls and bears, as there are many important earnings reports in the technology and finance sectors. Barry Ritholtz at The Big Picture breaks things down in another excellent “Week in Preview” with details on earnings and upcoming government data, as well as the usual high quality set of links to some of the top commentary and analysis in the investment world. Even if you don’t click all the way through, be sure to check out Barry’s summaries.

For what little it is worth, I am more bearish than the VWSI, but the bears are going to have to do a lot better than a one day pullback to make me a believer. Perhaps earnings and options expiration will help to sort out the believers and the non-believers.

(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 a VWSI of zero, I recommend an inexpensive Rhone blend. Inexpensive is a relative term, but with yesterday I finally got around to tasting a $13 wine that from D’Arenberg that managed to secure a 90 rating from Robert Parker: The Hermit Crab. The 2005 version is 70% viognier and 30% marsanne. To my palate, the marsanne sets the tone here, keeping the viognier component in check and delivering a subtle complexity that astonished me. Frankly, I can’t think of any white blend in this price range that I have enjoyed more in recent years. Seek this one out.

For other inexpensive Rhone blends, I continue to also 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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