Monday, December 3, 2007

VWSI Rises to +3 as Volatility Wanes

The VWSI last hit +3 just eight weeks ago and prompted the headline VWSI Slips to +3; Pressure Builds for Correction. That correction arrived, but the bigger question is whether it is going to be taking a seasonal vacation this year. I suspect that this will not be the case and December will have more than the usual amount of fireworks, so I will be long dry gunpowder.

With a drop of 3.05 points or 11.7% to 22.91, the VIX had its lowest end of week close in five weeks, but I wouldn’t necessarily read too much into these data points. Ultimately it is what the markets do at major support levels that will determine how volatile we are going forward and not volatility that will wag the dog.

For a survey of the best in current thinking about the markets, Barry Ritholtz at The Big Picture sums up the week that was and the week that will be:

Looking ahead, for those with an interest in the COT report, note that the commercials have been getting long volatility as of late. While the track record of this group is not great, it is better than most, so their actions bear watching.

(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. More recently, I was impressed by a 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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