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September 22, 2005
Remember the VIX?
And the Alamo too! There is an obscure (:~) indicator called the VIX that measures the implied volatility of S&P 500 options. Volatility is a measure of risk. High risk means high volatility and low risk means low volatility. While the S&P 500 and S&P 500 Equal Weight Index move higher, the VIX moves lower. As this chart shows, it has been trending lower for over two years and a long falling price channel has formed. The indicator found support around 11% over the last 10 months and a move above the August high would show increased volatility (more risk). This would be bearish. Further strength above 18% would break the long downtrend and usher in a period of rising volatility. This would likely coincide with a prolonged decline in stocks.
Posted by Arthur B. Hill at September 22, 2005 11:04 AM