Wednesday, March 11, 2009

Volatility Index ($VIX)

the same reader who sent me the 'Very Impressive' email yesterday sent me a follow up email:


To me the most intriguing chart right now is the daily VIX, which has been locked in a symmetrical triangle since the beginning of the year.

What's interesting about it of course is the fact that it hasn't registered a new high or even trended upward in the face of a market making new lows practically every day.

If the long term breakout over the 45 level last fall was the first impulse wave up to 80, followed by the correction back to 45 recently, shouldn't there be another impulse wave coming?


I confess that I don't pay much attention to the VIX itself. My main tool has been what I coined as the Panic Ratio, which is simply the VIX divided by the 3 Month Discount Rate. then there is another great ratio I happened upon a while back, the VIX divided by the S&P 500 Bullish Percent Index. this ratio was devised by Charles Amadeus, proprietor of the delightful blog 'Smoking Securities'. I think he calls it the 'Bullidex'. (yo Mr Amadeus! I just added SS to T&V's extremely exclusive 'Required Reading' list. if you ever put a link list up on yer new site I'd be honored to be included on it. I think I was on yer roll at yer old site, no?)

but this morning I'll take a quickish look at the plain vanilla VIX, the Panic Ratio and Mr Amadeus's Bullidex. in that order, I suppose.

sell stocks at trendline.

sell stocks at trendline.

draw yer own damn trendline.

so there you have it. as to why the VIX didn't move much on the latest decline... mostly because the latest decline had nothing to do with 'Fear' or 'Panic' but was simply a Deflation of Valuations. I've talked about this more in depth in the newsletter recently, I'm sure to approach the subject again sooner than later.