Sunday, September 23, 2007

VWSI Jumps to +6 on Rate Cut

It took 25 trading sessions for the VIX to shed half of the excess baggage it had accumulated by the August 16 intra-day high of 37.50. Thanks to the Fed’s larger than expected rate cut, not only is the VIX looking like a competitor from The Biggest Loser, but Friday also marked the first day since July that the VIX spend the entire day in the teens.

The VIX dropped 5.92 points or 23.8% this week to end the week at 19.00, but consistent with the volatility roller coaster theme, this was only the third largest weekly drop of 2007. The drop was enough to turn the VWSI around, however, pushing that indicator from -1 to +6. The VWSI has only registered an end of week reading of +6 or higher five times since 1998, with four of those five instances seeing a significantly higher VIX over the next few weeks.

I’ll offer up one additional factoid to think about. Consider the current investment climate and consider also that at its present level, the VIX sits a mere 0.07 above its 17+ year lifetime mean. To my thinking at least, the VIX is once again looking like fairly cheap portfolio insurance…

(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 +6 I favor a semillon. This often overlooked varietal tag teams with sauvignon blanc to form the white wines of Bordeaux, otherwise known as Graves. The thin skinned semillon grape is particularly susceptible to the Botrytis fungus, which means that semillon is also the primary grape used in the classic dessert wine known as Sauternes.

In the New World, semillon has gained a strong foothold in Australia, where it is frequently blended with chardonnay and sauvignon blanc, but also sold on its own. Last I checked, Peter Lehmann Wines produces four different semillons, with the Barossa Valley one of the most widely distributed in the US. Skipping a little to the east, just this evening I had an excellent 2002 Alpha Domus semillon from New Zealand, but the Kiwis have yet to show the same enthusiasm for semillon that they have for sauvignon blanc. Still, the Alpha Domus effort proves that the potential is there.

It is harder to pick a particular US producer that has built a reputation for semillon, but one to keep an eye on is L'Ecole Nº 41, from the Walla Walla, Washington area.

For more information on semillon, has a good discussion of the varietal, along with a handful of recommended producers in Australia and South Africa.


Art said...

New to your site and was reading the article about the VWSI of +6 . Could you send me a link to study more on the VWSI and where I could find that neat meter you are using? Thought I could study about VWSI via my Telechart, but alas nothing.


Bill Luby said...

Hi Art and welcome aboard.

The VWSI is a proprietary indicator, the precise details of which I have not published. The best place to find more information is where I initially introduced the VWSI. I have also been fairly diligent about using VWSI as a label, so you can also follow those links to get a comprehensive look at what I have said about the VWSI over the past 7 months.

I hope this helps.



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