Do I detect just a modicum of concern of this market via the VIX?
Yes we are off a few points today and this invariably causes at least a bit of a rally in the VIX. Nothing startling there. But watching VIX over the last few days I was beginning to wonder whether they were going to plough volatilities into the mid teens, come what may.
We all parrot the standing wisdom that VIX is mean reverting and I certainly think that's true. The nature of volatility and how it is measured makes it deterministically so... with an infuriatingly chaotic dualism so we can never really time volatility except by accident.
('cept when I nail it right on the day. That is unquestionably skill )
What is this mean VIX must revert to anyway? Having not really paid attention during may statistics classes, I never realized there was more than what type of mean. Sparing me the embarrassment of intellectual incapability of calculating other sorts of mean, I am quite sure it is the arithmetic mean of some defined lookback period, AKA a simple moving average.
Easy enough to work out, but even that simple task has been wrested from us via software.
But it begs the question, what lookback period should be used to determine the mean? In other words, what length moving average?
There is a school of thought that uses the 10DMA. Fair enough... whatever. But the lookback period used can deliver vastly different "means". Also the mean is a moving target. The mean today scarcely resembles the mean 8 months ago. By the ten day measure, VIX is probably already overbought (whatever that means). By other measures, there is still some reverting to do.
Whatever the case, the VIX mean is heading lower, unless Roubini's 2nd crash scenario unfolds; and don't see that happening in the near future.
What I'm basically saying in an extremely convoluted way is - VIX has finally bounced, but I have no idea where it, and the market, is going next. But my guess is some degree of retracement.
Discuss this, and other topics at International Stock Forums.