Clinton,
For a complete discussion of VIX - go to the CBOE site... they have a complete text of what THEIR take is on it.
For ME, what the VIX does is relative... meaning, an MA will give you some idea what a "normal" VIX is for the current market. Then the offset from this MA is a measure of the buy or sell potential and it works this way:
Say the average VIX is 25. Any move up above that level, especially if strong, indicates volatility and usually a sell-off. Any time it gets a certain delta away from the avg, that CAN be an indication of a BUY... at least in the short term. In the longer term, as the VIX quiets down and the average gets below 20... that means, IMHO, things are back to normal and you may have a strong move up on an intermediate basis coming.
The reverse can also be true, IMHO.
Now a further subtlety on this situation is that VIX reflects investor anguish and fear where the rubber meets the road! So when we had a 500 point sell-off Oct 27th, it spiked at 55 and closed at 40. Well, now it would seem we have an even MORE nervous market and, at one point, a drop of 300 points (closed down 222) - VIX peaked at 35. Now REALLY! If people were as upset, nervous and anguished as the SAY they are, VIX should really have spiked over 40 and maybe even to 50. But THAT's the rub... the market came back and VIX was well under 40 at 35 peak.
What does this mean? Here are some possibilities:
- lemmings milling around don't know which way to go.
- lemmings becoming complacent and saying, "oh well, here we go again... just another sell-off which will come back if we wait!
- MMs not as worried about the volatility and willing to make up in volume what they could lose in price.
- Or, or, or...
BTW, I use the term lemming frequently and since it is a semi-derogatory term, let us see how I define it: A lemming is an investor who spends more time investigating the deals on the washer he or she buys than the kilobuck stock or fund being bought.
... I was once one of those people... now at least I KNOW why I lose the money I lose... and they are the ones who are laughing at me!
Bill |
