Friday, May 2, 2014

Let's check up on the $VIX:$VXN spread

A clever swarthy English fund manager gentleman (whose name rhymes with "Flichael Flaoul") was pointing out a few weeks ago that the $VIX-$VXN spread had been widening, which he said was an indication that markets were returning to normalcy from the tech hype of the past few years.

His reasoning was that people should have been paying a premium for volatility protection on the Q, because its stocks are more full of bullshit than what you find in the broader US market. The equality between $VIX and $VXN that we'd been seeing was an indication that people had been too willing to buy bullshit the past few years.

$VXN had been creeping steadily up since January, and the peak was right around the day that people had to finish selling to pay capital gains taxes. What's been happening since then?

The spread has dropped to 3.7 points, from the 5 we saw in April selling season. $VXN seems to have just today bounced upward off an upward-trending support line, though it's still too close to be meaningful either way. $VIX also looks too low for buying to be interesting.

I know nothing about $VIX-$VXN spread as an indicator, because I didn't start watching this market til after it stopped being normal. But from what I gathered from "Flichael", the spread should still be wider than this.

Of course low $VIX today doesn't mean it pops higher tomorrow... a slow accumulation of the market like last fall can make $VIX slowly drift downward for months, right?

I just thought it was something worth looking up, and then something worth sharing.

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