Sunday, September 9, 2007

VWSI Ends Volatile Week at -1

Another volatile week is in the books, with no signs of volatility coming to an end. While the NASDAQ and VXN took center stage at the volatility circus this week, the VIX managed a weekly gain of 2.85 or 12.2% to end the week at 26.23 – still the third highest end of week close since April 2003.

With back to back 12+% weekly gains in the VIX, the VWSI has slid from +2 to -1 over the past two weeks. These are still largely neutral readings; I do not consider the VWSI to generate tradeable signals unless readings reach at least +3 or -3.

Just for fun, here are a few VIX simple moving averages:

  • 10 days: 23.96
  • 20 days: 25.96
  • 50 days: 21.30
  • 100 days: 17.61
  • 200 days: 14.89
  • 500 days: 13.66
  • 1000 days: 14.28

If you consider that the mean VIX reading for the full 17+ years of VIX data currently stands at 18.92, then any mean reverting activity related to the numbers above is likely to involve a declining VIX. The trick, of course, is to get the time frame right.

(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 -1 I recommend a pinot noir, probably my favorite of the lighter red varietals. Perhaps the most overlooked of the locations that produce superb California pinot noir is Anderson Valley, a diagonal finger that extends from northern Sonoma to the Mendocino coast. The climate in Anderson Valley is such that it seems everyone is able to make top-notch pinots, but my three favorite producers are Londer Vineyards, Goldeneye (I believe this winery is still on the selling block; be sure to try their second label, Migration, as well), and Esterlina Vineyards.

For some other suggestions on the pinot noir front, I have another blog with links to a dozen of my favorite producers: Zin and Pinot. The content on that blog has been intermittent as of late, but as the markets get back toward some sort of ‘normal,’ I hope to remedy this.


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