VIX 01 (Jun 09 - Oct 11)

[winston]

ARE YOU READY FOR A 60% SURGE IN VOLATILITY?

Steven Sears had a good piece in Barrons over the weekend disussing the low level of the VIX. As the market has continued to melt higher we’ve seen increasing levels of complacency as investors become increasingly comfortable with the market and their belief that it simply cannot decline.

While the economic fundamentals certainly back this outlook it’s always nice to have an insurance contract in your back pocket just in case. In this case, it might be a bit of covered call writing or some outright VIX purchases.

Sears notes that MKM analysts believe the VIX could jump 60%+ in the coming months. Not a bad insurance contract to have just in case. Better yet, it doesn’t keep you out of the game entirely.

Remember, you can’t hit a pitch you don’t swing at. But now isn’t the time to be swinging for the fences. Via Barrons:

http://pragcap.com/are-you-ready-for-a- ... volatility

[winston]

Weekly Review

The VIX had one heck of a move, up 24% on the day. Nothing like a good geopolitical scare to send volatility screaming to the upside. It closed at 20, and that is still considered a low level. It is coming off a bounce of a long-term support level.

If you pan back, it bounced off of this level in April of 2010. It is moving higher, but still very low historically. Does that mean it automatically has to move up? Of course not. Volatility and the market are behaving the way they should in an otherwise "healthy" stock market. As the market sold, volatility jumped higher.

Even though the market was rising, volatility was not rising before this move. It had been trailing off with this entire rally. You worry about major selloffs when volatility rises as the stock market rises. That was not the case here; it is acting normal.

Big selloff in the market on geopolitical fears, hence you have a big surge in volatility. We have been buying cheap options, whether calls or puts. In terms of historical volatility, it has been very low. Even with today's surge in volatility, implied volatility and historical volatility remain very low parts of the option-pricing equation.

Of course we have to see how it reacts and see if it surges back to the upside up into the 30's and 40's. If it does that, this will be a major selloff in the market. I do not see that being the case, but when you have geopolitical events in the shifting sands around the world, what seemed to be firm footing one day can be a quicksand quagmire the next.

VIX: 20.04; +3.89
VXN: 21.66; +3.83
VXO: 18.5; +3.91


Source: Investment House

[winston]

The CBOE VIX Volatility index <.VIX>, known as Wall Street's fear gauge, dipped 2.5 percent to 19.55, after having surged by 24 percent on Friday in the largest single-day percentage gain since May.

Source: AP

[winston]

Weekly Review

The VIX has been as volatile as oil and gold over the past couple of weeks. The fear on the Egyptian story has subsided just as rapidly as it showed up, coming back down to the lows hit in late December.

While low, that is not necessarily an aberration. I have talked about this many, many times, but there is so much discussion of the VIX that it needs to be brought out.

Volatility can stay low and trend lower for years, and that does not mean the market is about to turn over. When you are in a sustained rally, volatility falls to a certain level. It can continue to fall.

Only when volatility rises as the stock market rises (as it did in 2000) do you have worries about a serious correction. Now we just see a pullback to where it has bottomed recently, and that has led to modest corrections in the stock market.

Volatility bounces, the stock markets corrects, and then it is right back to rallying once more. There is nothing nefarious in the VIX, just "ordinary times" action.

VIX: 15.93; -0.76
VXN: 17.91; -1.18
VXO: 14.67; -0.38
Put/Call Ratio (CBOE): 0.87; 0


Source: Investment House

[winston]

Weekly Review

The VIX is back down to the level it has hit three times over the past month and a half. The market has continued to the upside, more or less, during that period.
There has been a bit of volatility outside the SP500.

The SP500 has made a fairly straight shot to the upside. It has not shown any real selloff. It did have a big jog lower one day and a test to the 10 day EMA another day, but that was it. There is no real volatility here.

That makes me wonder if we should put much stock in the fact that the VIX is back down to levels it hit earlier this year and in April before the market was in a deep selloff during the summer. I have my thoughts about that.

Volatility can indicate there might be a pullback coming. The market does need a correction. In November, however, the market never reached this level when it started the last correction.

Do we really want to put too much emphasis on the fact that it is down at this level again? It has not corrected since it has been down here. It can, but what do we have? We have a stock market that is extended. With the VIX hitting those lows, it may foretell a much needed correction from this run straight to the upside.

Overall, however, I do not believe that VIX is saying anything about the long-term effects of the rally. It had a good base. There has been one run, a test, and now a second run. I think another test will come.

The VIX is not saying this will be the last run at all. Volatility can remain low for a long time. As long as it is declining as the market is rallying, there is no major selloff in the works.

VIX: 15.69; -0.4
VXN: 17.18; -0.73
VXO: 14.27; -0.36


Source: Investment House

[winston]

Weekly Review

VIX. Volatility is holding at the low levels it hit over past month and a half, but also note it was bouncing up and down intraday.

It was very volatile intraday the past three sessions. Looks like it has happy feet; it is nervous and wants to make a jump. That is just one thing we are watching.

It suggests that the market may be ready for a pullback. Not to mention that long, 45-degree line it has drawn as well.

VIX: 16.43; -0.16
VXN: 17.9; -0.32
VXO: 14.37; -0.72


Source: Investment House

[winston]

Weekly Review

The VIX faded back this week after that spike higher on the worries about Libya. It is still at an "elevated" level compared to the recent couple of months, but it is at a level it has held many times.

It is really at the low end of the "normal" level of 20-30. Volatility is not high. It has not been ramping up as the market rallied up. This is a normal situation as far as I am concerned.

It is trying to make a higher low here, and it might want to bounce some more. That would coincide with more chop and volatility in the stock market itself. That would be normal during a correction.

VIX: 19.06; +0.46
VXN: 20.47; +0.37
VXO: 18.14; +0.97


Source: Investment House

[winston]

PROBABLY THE SUREST BET IN ALL OF FINANCE

There are few sure bets in the financial markets… and few definitive "this is the case, and it always will be" statements we're comfortable making.

One of the few statements we'll stick by forever is, "Calm periods of rosy headlines and softly rising prices will always be interrupted by periods of wrenching volatility… and vice versa."

That's just the way the world works… and it was one of our biggest concerns in January.

For a picture of this "always the case, always will be" phenomenon at work, we present the past five years of the Volatility Index (the "VIX"), the most popular gauge of market volatility and investor fear. When the VIX is low (below 20), it indicates investors have few worries and see blue skies ahead. When the VIX is high (above 30), it indicates panic and confusion.

In early 2007, investors were enjoying the "good times" of the housing bubble. The VIX was below 15. This was followed by the massive volatility of the credit bust.

The VIX exploded into the 30s and then into the 80s. The low volatility "good times" returned in early 2010… just to be slammed by the Flash Crash. "Good times" returned last September as Ben Bernanke's E-Z-Credit program drove the VIX back down near 15. Now, the Japanese earthquake is returning us to volatility… confirming one of the surest bets in the world.


Source: Daily Wealth

[winston]

Weekly Review

VIX: 24.44; -1.93
VXN: 26.6; -1.81
VXO: 23.55; -1.94

VIX. Volatility spiked up over 30 on the intraday high on Wednesday, and it managed to hold at a high level overall. That is high relative to where it has been trading, and 30 is considered a more volatile level historically.

By the end of the week it had fallen back to 24, down to the mid-range of what is historically considered the 20-30 range for volatility. That puts it at a moderate level of volatility, but it is on the rise thanks to this selloff.

Volatility did not show there is any major aggressive selloff in progress, but of course it does not always factor in (as bonds do) extraneous events that could be in the works that hit the market overall. That is why we see that big spike higher after the Japanese issues.

It has pulled back. It has broken out of one range, but it does not mean it will explode higher in major selling. It is likely to find resistance near the 30 level. That is a key level from back in 2007-2009 X times when there were not a lot of negatives facing the market overall.

You might say are a lot of negatives out there with all the geopolitical issues, and you are right. There are negatives, but the volatility market is not necessarily showing that.

Again, fall back on the bond market some. It is showing another issue could possibly erupt. It continues to price in higher bond prices versus higher yields.

Source: Investment House

[winston]

Weekly Review

The VIX has given back the move from the first part of March that ratcheted volatility up over 30 as the market sold back. As soon as the market rallied, it has dropped right back down, but not to the lows that started the move. Why?

The indices have not made the highs they were at before the move. This is acting just as you would expect it to.

In other words, volatility was not rising as the stock market rose. It only started to move up when the stock market turned volatile and choppy and started to sell off.

Volatility, typically being the inverse of the stock market move, shot higher at the time. It would have been a problem if volatility was moving up as the stock market was moving up similarly. That was not the case.

If it does happen, that is pretty reliable indication that you have a major correction coming. We did not have that X not yet. We had a substantial pullback as we had in August and November, but no major selloff.

The market is rebounding and it still has work to do. We will see what happens. VIX was not flashing any very dangerous signs.

VIX: 17.91; -0.09
VXN: 20.78; +0.19
VXO: 17.66; -0.12


Source: Investment House