Tuesday, July 01, 2008

Thoughts on the Volatility Index (VIX)

My colleague Helene Meisler at TheStreet.com has correctly mentioned how everyone seems microfocused on the VIX right now. The Heisenberg principle would tell us that when everyone is looking in the same place, the expected outcome is less likely to materialize (like a watched pot).

But seriously, everyone keeps saying that the VIX has to get back into the mid-30s for a good bottom. I am not so sure. Merrill's technical analyst said that many times during a market retest of a bottom, the VIX will make a lower high, and that this is positive.

Also, if you look at the recent move in the VIX in percentage terms, it is on par with the March move. From its 2/26 low of 21.9, the VIX surged +47% to 32.2 on 3/17 (closing).

This time around, the VIX made its low on 5/15 at 16.3, and has surged +56% at today's high. So maybe the VIX has had more of a move than people are giving it credit for.


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