Sunday, March 18, 2007

VWSI at -2

After a classic mean-reverting snap back last week, the VIX Weekly Sentiment Indicator (VWSI) took more of a meandering approach in the most recent week, registering only a -3 reading following Tuesday’s 30% spike and a -4 on Wednesday, when the VIX topped out at 21.25, a reading not seen since June 2006. While technically any reading below zero has to be considered to be somewhat bearish for the VIX, the current -2 reading is still within the -3 to +3 neutral zone, where I do not consider the statistical edge and risk/reward profile of the VIX to warrant taking either a long or short position.

At a little less than 4% over the VIX’s 10 day SMA of 16.18, it is difficult to make a case that the VIX is over or undervalued at current levels. It is worth recalling that the VIX tends to fizzle on Fed Days and almost never spikes 10%, so it is particularly difficult to make the case for being long the VIX going into the upcoming Fed announcement. For those looking to trade the VIX, this is a good time to be patient and wait for better setups.

(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.)


DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2023 Bill Luby. All rights reserved.
Web Analytics