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.

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.

VWSI Spikes to -9 on Thursday; Finishes Week at -1

Last week in this space I opined:

“…following the VIX Weekly Sentiment Indicator (VWSI) is a little bit like undertaking a police stakeout: lots of waiting around for a chance to be tipped off to something significant – that may or may not be just around the corner. You never know when something important is about to happen, so it is important to pay attention and be able to react quickly to what develops.”

As it turns out, volatility was indeed just around the corner, with the VWSI cresting intra-day Thursday at -9 when the VIX spiked over 23% in one day, then snapping back to a VWSI of -1 by the end of Friday, after the VIX reversed direction and sank 13%. All told, the VIX ended the week up 16.1% to 14.84, which is the highest weekly close since March 16^th.

With a current VWSI of -1, the most likely scenario for the next week or two is for the VIX to drift sideways to down a little.

(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: A VWSI of -1 is a perfect excuse for a pinot noir – in the unlikely event that an excuse is ever needed. Popularized in part due to the excellent 2004 movie Sideways, pinot noir has been on a roll for the last couple of years. Given that I live just a 45 minute drive from Russian River Valley, which happens to be home to many of the world’s best pinot noir producers, it is not surprising that this is a personal favorite as well.

Since this is my first pass at pinot noir in the wine pairing segment of my ramblings, I will steer clear of highlighting a particular wine and instead direct the reader to Zin and Pinot, a blog that I have set aside to talk about zinfandel, pinot noir “and more.” Even though zin gets top billing in the blog title, so far I have devoted considerably more real estate to discussing pinot noir – and have also included a list (with links, of course) to my dozen favorite pinot noir producers.