That Dipping VIX

• Posted by Adam Warner
• on September 10th, 2009

So remember back like two weeks ago when a vocal minority of market observers got bullish on a spiking VIX? My problem with the call was not that they got it wrong directionally, but that they took a product generally designed as a contrary indicator and used it backwards.

So if oddly strong options got them bearish, what will they make of weak options? As my friend Dave reminds me, the VIX has now shifted to borderline oversold on the “10% Above (Below) the 10 Day SMA” Indicator. The Day 10 SMA is 25.92, so we’re right there as I type.

Will get into this more tomorrow, but a couple caveats. This is bearish for the market on the surface, but complacency tends to linger. In addition, Fear to the levels of a couple weeks ago was not justified based on the underlying market action, whereas complacency is justified when you consider the low realized volatility backdrop.

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