[RT] (Fwd) inkblot chart: SPX in terms of volatility and rates

[gary@xxxxxxxxxxxx (Gary Funck)]

I thought it might be interesting to look at the S&P cash
index in terms of some other factors: (1) implied
volatility (VIX) and (2) long rates (TYX).  The attached
charts are "scatter charts" that show the values of SPY
(S&P Depository Receipts which trade at 1/10 the S&P 500
cash index) for various values of VIX and TYX.

These charts have a bit of a Rorschach character to them,
but offer some insights, gained from the removal of the
time element.  (in fact, the time element is not completely
removed because it is embedded in the ever-increasing price
of the S&P).  The time period covered is 10/29/1993 to
01/24/2000.

I'm partial to the S&P as a function of VIX chart -- it
shows the ever-increasing trend in volatility as the S&P
price has marched higher.  It also shows the wide range in
implied (VIX) during the 1998 LTM bailout/crisis.  You can
see the periods of time that the S&P marched higher as
rates and/or volatility dropped, and the current phase
where the market has been heading higher along with
volatility and long rates.  The charts also show a fair
amount of dispersion in S&P in the last few months,
reflecting perhaps the fact that relationship of the S&P
price to long rates and/or volatility has both diverged and
become more sporadic.

(SPY/VIX chart attached in this message, and SPY/TYX in the
next.)
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