Sunday, September 16, 2007

Waiting on the Fed; VWSI at -1 Again

By the numbers, last week saw the VIX decline 1.31 or 5% to 24.92, following four days in a row where the VIX opened near the high of the day, then slowly pulled back.

Needless to say, all eyes are on Tuesday at this stage, where the Fed and the VIX will dance on the last day for trading September VIX options and disappointed investors could provide additional confirmation for the current VIX macro cycle.

With the VWSI at -1, held in check largely by the VIX’s relatively low long-term moving averages, I don’t see implied volatility or the VWSI telling us much about what the Fed is going to say, so I’ll be waiting just like everyone else, content to know that it is usually better to try to react than anticipate.

(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 continue to recommend a pinot noir. When I think of California pinot noirs, I immediately think of the Russian River Valley and the nearby small and foggy appelation known as Green Valley. Excellent pinot noir is more the rule than the exception here and four of my favorite producers are Martinelli Winery, Lynmar Winery, Hartford Family Winery, and Dutton-Goldfield Winery.

Further afield, last week, I spoke about three superb pinot noir producers from Anderson Valley: Londer Vineyards, Goldeneye (along with their second label Migration), 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.


Unknown said...

What is the VWSI measuring? Also, what is the current reading as we are about an hour and a half away from the Fed decision? Thanks

Bill Luby said...

The VWSI has been reading a steady -1 all day yesterday and through 12:45 p.m. EDT today, where the VIX is currently at 24.86.

For more on some of the components of the VWSI (I have not published the full formula) try here.

Unknown said...

I don't trade or touch the VIX. However, I am very curious what your VWSI is saying about the VIX for tomorrow. Also, you did some work on the VIX heading the FOMC meeting. Obviously today's surprise has crushed the VIX down 21%, which is allot more than the 3% - 3.5% avg decline that we have seen in the VIX prior the FOMC. Where do we stand? Do we throw out evrything that we know about the VIX now?

Bill Luby said...


At a current 20.40, the VWSI is at +4, though I don't generally use the VWSI to predict the VIX for the next day.

No we don't throw out everything we know about the VIX, but I will have more to say about a -23% one day fall in the VIX relative to a +2.7% move in the SPX -- hopefully as soon as tomorrow morning.

I don't think this is a short-term bull -- or at least that's now how I am playing it.

FWIW, the ISEE did print it's buy signal right on schedule yesterday as well.

Cheers and good trading,


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