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The VIX fell below 16, a level unseen since just before the spring correction, and MarketBeat...

The VIX fell below 16, a level unseen since just before the spring correction, and MarketBeat wonders if it means complacency has set in. "Most of the market chatter we hear seems to indicate that the only direction stocks can go is higher. That alone would make us somewhat nervous. Seeing the VIX fall to these levels is another eyebrow raiser."
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Comments (6)
  • superpatrol
    , contributor
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    I know people like to look to VIX as some kind of contrarian indicator, but the truth is that a "low" VIX tends to be a predictor of good returns in the short term. On long timescales, a low VIX has correlated with a low risk-premium for equities, thus suggesting that equities are generally pricey, but I think it is really hard to take advantage of this effect.

     

    The other thing is that VIX, right now, isn't really that low, but rather near the historical average.
    20 Dec 2010, 05:31 PM Reply Like
  • superpatrol
    , contributor
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    correction, vix IS significantly below its historical average- oops. Of course, it is nowhere near historical low levels.
    20 Dec 2010, 05:39 PM Reply Like
  • Villi Grdovich
    , contributor
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    It may not have much predictive quality, but a lower VIX implies lower volatilty in stocks and therefore a more attractive asset class for investors.
    20 Dec 2010, 05:46 PM Reply Like
  • superpatrol
    , contributor
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    good point
    20 Dec 2010, 05:58 PM Reply Like
  • Anoddamoose
    , contributor
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    Absolutely. It allows for greater position sizing at equivalent levels of capital risk.

     

    I'm fully expecting to see single digit VIX - somewhere between 5 and 10 - before the equity market gives up the ghost for a major correction. Bunnies will continue to be pulled out of hats for a while before that happens. Count on it.

     

    The European sovereign debt crisis is the big unknown. I wish I were more optimistic. Moody's is waving the penalty flag in the peripheral countries (Spain and Portugal today) and that is not good. I do think we have a fair amount of time before the posturing and bandaging and accounting tricks and surprise comments - as from China - all come to an end. Next fall?
    21 Dec 2010, 06:38 AM Reply Like
  • Jackson999
    , contributor
    Comments (468) | Send Message
     
    * Monday, December 20, 5:10 PM The VIX fell below 16, a level unseen since just before the spring correction, and MarketBeat wonders if it means complacency has set in. "Most of the market chatter we hear seems it indicate that the only direction stocks can go is higher. That alone would make us somewhat nervous. Seeing the VIX fall to these levels is another eyebrow raiser."
    =========
    It will be different this time! :)

     

    I mean, it's the 3rd year of the presidential cycle, "uncertainty" over taxes has been banished for another two years, there's a full eclipse of the moon on winter solstice day (the first time in hundreds of years), etc.
    20 Dec 2010, 06:36 PM Reply Like
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