Date: Fri Oct 24 2003 14:31
trotsky (Hambone@VIX) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i DID answer that question. you must have overlooked my reply. anyway, i'll give it to you again: it's true, the low VIX is a concern - it shows that front month index options are too low in price, a sign of complacency. but it is dangerous to look at the VIX in isolation. for instance, in the early 90's, the VIX traded at single digits and low double digits for an extended period - and the market kept going up. i'm of course not arguing that the early 90's are about to return, just saying that a low VIX per se doesn't automatically translate into a market decline. the VIX has been quite low since late April, but the recent spike to a new low was obviously a bit too excessive - and the market has already responded with a bout of weakness.
btw., i'm open to the possibility that the current decline could develop legs, depending on its character. if there's e.g. a lot of short covering right away, and puts get taken off the outstanding OI and replaced with calls quickly, we might be in for a bigger dump. i'll make sure to report on that if it happens. however, October expiration was an excellent chance for such a character change, and the post expiration data showed little to no movement on that score. but we'll see...per experience, what happens during declines is more revealing than what happens while the market is still trending up. and as i've mentioned, the recent blow-off move in junk debt is a warning sign, as is the sharp slowdown in money supply growth. i really only have a single argument favoring the bull case, and that's the fact that so much money is committed to the short side. |
