Sunday, November 18, 2007

VWSI Swings From -10 to Zero in Wild Week

When you are playing the VIX mean reversion game, it doesn’t get any better than last week.

We entered the week with the VIX Weekly Sentiment Indicator (VWSI) at an unusually low -9 reading, but by the time the bull carnage had been tallied on Monday evening, the VWSI was maxed out at -10 and the VXN was looking even more ‘overbought’ than the VIX. These extreme readings triggered a rare market call on my part, which I titled a VXN Reversal Signal, but which also applied to the VIX. On Tuesday, the markets responded on cue, with the NASDAQ composite rallying 89.52 points in an impressive show of strength…and pushing the VWSI all the way back to zero.

Given the fireworks on Monday, the rest of the week was relatively uneventful, with the major market indicies largely meandering and the VIX ending the week at 25.49, down 3.01 (10.6%) from the previous week. In a nutshell, Waldo was nowhere to be found.

As is my new custom, I look to Barry Ritholtz at The Big Picture to sum up the week that was and the week that will be:
The VWSI has no bias going into the shortened week (3 ½ trading days, with the half day on Friday) and I find myself in the unusual position of sitting mostly in cash while I look for the currents to tell this jellyfish where to go next.


(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 have heretofore been recommending a variety of inexpensive Rhone blends. The time has come to loosen the reins a bit and broaden the category to include everyday white and red blends from all varietals and regions, as long as they are reasonably priced. With this expanded criteria, I am please to recommend an usual blend of sauvignon blanc, pinot grigio, gewurztraminer, and semillon that goes into the Brassfield Serenity. This is an $11 white blend that is not just a fascinating change of pace, but an excellent food accompaniment and ultimately a wine that is quite impressive as a solo act as well. Finally, if you want to stump your favorite wine snob in a blind tasting, this is almost guaranteed to do the trick…

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