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>short term bearish
>b: vix in a solid sell
Regarding the VIX:
Due to VIX action in Mar-May, the statistical volatility of the VIX exploded
way beyond its long term historical mean. causing a "hump" on the long term
historical mean.
Whenever this happens, the long term historical mean tends to come down to
its normal level. and this is made possible by the short term historical
mean staying well below normal levels.
The top plot will show this tendency.
The bottom plot will show how this appears on the VIX chart, as well as the
seasonal tendency indicated below.
Therefore I would not draw conclusions regarding implied vols being too low
right now indicating complacency, because the current low readings reflect
more of the mean reversion process caused by a sort of tiredness by having
been too much on the edge recently - and less of the complacency process.
To put it another way, rhe recent levels of fear were so high that the fear
has subsided or is subsiding. Does not mean that complacency has set in.
Sustained low VIX will imply either or both of two things:
a/ Complacency
b/ Seasonal low volatility to be expected during the early summer.
I think it still needs a few weeks work to tip the balance from "reducing
fear" to "increasing complacency".
Just because VIX is at 22% doesn't make the market a sell. Gotta see how it
got there.
This is a judgement call on the "tone", so I may be wrong.
But this is how I call it.
Chart attached.
Gitanshu
Attachment Converted: "f:\eudora\attach\snap70.gif"
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