Monday, October 8, 2007

VWSI Slips to +3; Pressure Builds for Correction

The word ‘correction’ implies that something is wrong that needs to be corrected. Even though I spent a good portion of last week on the wrong side of the markets, that doesn’t make the markets wrong, it merely makes me wrong.

Still, the persistent high positive numbers registered in the VWSI over the past three weeks is unprecedented, which is part of why I have been wrong side of the market. While the VWSI and VIX are excellent short-term indicators, they are far from omniscient.

Strictly by the numbers, the VIX registered its fourth consecutive substantial weekly drop last week, losing 1.09 or 6.1% to end the week at 16.91. This is the lowest end of week reading in three months and raises the question of where the VIX will ultimately find a bottom. I recently attempted to answer this question; and Adam Warner at Daily Options Report had some similar thoughts on the subject.

(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 previous VWSI readings of +3, I highlighted sauvignon blancs from Cloudy Bay and the Marlborough region of New Zealand, as well as some excellent California producers whose sauvignon blanc can be had locally for $10 or less: Bogle; Chateau St. Jean (where it goes under the fumé blanc moniker); Concannon; Kenwood; and Sterling. This time around, I recommend an elegant, complex sauvignon blanc, with a little bit of oak, from Gary Farrell Vineyards. Their 2005 effort can be had for about $25; for my money, it knocks the socks off almost all of the chardonnays in that price range.

Finally, for an entertaining (think the mannerisms of Joe Pesci and Woody Allen blended with the enthusiasm of Jim Cramer) and informative look at sauvignon blanc, I encourage the reader to sample Gary Vaynerchuk's "Sauvignon Blanc Taste-Off" on wine library tv.

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