Les, I wish there were good data correlating the average "VIX" as function of interest rates. After all, the VIX really measures the premium demanded for "time" on options. Since options are used as a hedging instrument (by the "conservative" side of the equation, or call it the "options writers"), they would demand higher premiums when interest rates are high (since their alternative is to simply get returns in short or medium term debt paper) and lower premium when these are low. Thus there should be a moving average going generally down when interest rates are declining and generally up when interest rates are increasing (actually, the market perception of future interest rates is probably more important). On top of that moving average, we have the short term oscillations in the VIX that are more correlated with "complacency" on one hand (low VIX) and fear on the other hand (fear or fear of high volatility). Thus the absolute value of the VIX cannot be compared between periods of high interest rates and low interest rates. My own preference has always been to look at the time derivative of the VIX (a smoothed average) to see if it is changing direction (from complacency to fear and vice versa), as a supporting evidence of a trend change in the market. Who knows, in the current cycle, the VIX could go well under 20 before it bottoms.
In any event, anyone here looking for the holy grail, any single indicator that will signal ahead of time a change in the market direction, is engaging in sisyphian work. I don't believe there is any. Hey, it is tough enough to decide if we are in an uptrend or down trend right now. The Dow for instance, is clearly in an uptrend, while the Naz, seems to be in an intermediary down trend. The question on many people's mind is will the Dow pull up the Naz with it, or is the Dow topping here and will come down under the influence of the Naz?I wish I knew an exact answer to that question, unfortunately, I do not.
Zeev |
