VWSI at Zero as Year Coasts to a Close

A year ago, the VIX stood at 11.56. Last week it ended the week at 20.74, up 79%. Of course, in the absence of a VIX ETF (or ETN), it was almost impossible for volatility aficionados to capture that 79% gain.

For the moment, at least, things seem to be quiet on the volatility front. Last week the VIX gained 2.27 points (12.3%) to bring the index to a level just 0.17 below the 10 day simple moving average and 0.93 below the 20 day SMA. Partly because of this, the VWSI is back at zero and indicating no directional bias for the beginning of 2008.

As is my weekly custom, 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 in his New Year’s Linkfest.

Finally, as volatility tends to run in 2-4 year cycles, it is appropriate to ask whether the 79% gain in the VIX in 2007 marks the beginning of a new volatility macro cycle. In spite of the historical precedent, I am on the record as saying that the most likely volatility scenario for 2008 is a VIX in the low to mid-20s.

(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 began the year recommending some Rhone blends and later expanded the category to include any expensive blend. For 2007, I will close out the year with my two favorite inexpensive blends: the $8 Oakley Five Reds (the 2003 vintage is a blend of 41% syrah, 27% zinfandel, 22% petite sirah, 10% alicante bouschet, and 1% mourvedre from Cline Cellars); and the 2005 vintage of The Hermit Crab from D’Arenberg, a delicious $13 blend of 70% viognier and 30% marsanne.

Lethargic Pre-Christmas VIX Has VWSI at Zero

While last week felt to most investors like a turbulent week in the markets, it must have also been a week in which the VIX was not listening to the gloom and doom reports. While the SPX fell 36.71 (2.4%) on the week, the VIX rose 2.42 points or 11.6%. Historically, when the SPX falls 2.4%, the VIX jumps about 11.4%, so last week was a typical reaction in the volatility markets, with no apparent extra fear factor in the mix. Keep in mind, however, that Adam Warner of the Daily Options Report is maintaining that the VIX is artificially low at the moment because of some idiosyncrasies in the holiday trading calendar.

So here we are, tottering on the precipice of a bear market, but with a relatively mild fear component. My bias has turned bearish, but until we start to see a pattern of lower lows, I will probably play this as more of a sideways market than a downward sloping one.

As is my new weekly custom, 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: Winter Solstice Linkfest Review/Review

I suspect that in the coming week and into the new year, headline risk will be one of the largest drivers of investment strategy. Whether you are positioning your portfolios for a potential last minute Santa Claus rally, for the January effect, or for any other strategy, consider some of the headlines you may be seeing in the next few weeks and keep in mind that one of the most important tenets of risk management is to limit potential losses.

(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 blends. I recently enjoyed the 2005 Trentadue Old Patch Red, a steal at $12. Previous recommendations for a VWSI of zero have included Brassfield Serenity, as well as a wide variety of Rhone blends.

VWSI Holds at Zero in Advance of Black Friday Data

It was a quiet week in Lake VIXbegone. Very quiet. So quiet, in fact, that the VWSI remained stuck on a zero reading for the second week in a row and the VIX gained only 0.47 points or 1.8%, the fourth lowest weekly change all year.

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:

• Thanksgiving Day Weekend Linkfest: Review/Preview

Consumers were apparently keen on snapping up bargains on Black Friday, where sales were up 8.3% over last year and followed through on Saturday, with sales up 5.4% versus the previous post-Thanksgiving Saturday. The combined Friday-Saturday statistics show a 7.2% increase in sales over 2006, with a 4.8% increase in traffic more than making up for a 3.5% decline in purchases per person.

Whether the surprising strength in consumer spending will take some of the momentum away from the bears remains to be seen, but my personal bias is slightly bullish going into the week, despite the weakness in a number of technical indicators.

(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 blends. Just this week I enjoyed the 2005 Trentadue Old Patch Red. This berry explosion is an unusual blend of 70% zinfandel, 20% petite sirah, 5.5% carignane and 4.5% syrah. Surprisingly, the petite sirah comes through as dominant, with the zinfandel playing a rare secondary role, with the exception of what I thought was a touch of residual sugar in the finish. This is a fun wine to drink and at $12 at my local wine store, worth seeking out.

Previous recommendations for a VWSI of zero have included Brassfield Serenity, as well as a wide variety of Rhone blends.

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:

• Pre-Thanksgiving Linkfest: Week in Review
  
  
• Pre-Thanksgiving Linkfest: Week in Preview

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…