Another County Chimes In

Helene Meisler steps up to the VIX plate.

I'd like to thank each and every one of you who have sent me links to various writings on why the VIX has yet to get jumpy. I have seen reasons ranging from the fact that there are more inverse ETFs around now to explanations about various options strategies that I couldn't possibly explain to you. Yet here we are, without a jumpy VIX and we still haven't rallied.

I will not spend more time discussing the VIX since we've beaten that horse to death, but I will take this opportunity to remind folks that indicators are there for statistical purposes. While we can easily move statistics around to say what we want them to say, taken at face value, they really are facts. And when you rationalize an indicator or a statistic, you are rationalizing a fact that the market is presenting to you. It's generally not a good bet.

Of course she is correct in the broader sense Think "Inflation ex-inflation" or brilliant observations like "the S&P would be down only "X" if you don't count financials."

But....

Market structures do change over time. So the same way it is wrong to justify a certain indicator when it doesn't do what you want it to do, it is also wrong to use a dated model of behavior.

Remember a year ago when they got rid of the plus tick rule? Jason Goepfert and Dr. Brett noted a sudden change in Tick behavior. You had to either adjust, or just assume all those high negative tick readings meant something more than they really did.

How about short interest analysis? Increased popularity of options and ETF's over the course of time adds short interest of the sort that has low significance directionally.

Volatility has more subtle pulls and tugs, but they are very real. Automation, decimalization, ETF's, the plus tick rule, Inverses, et. al. all have a very real effect. A 35 homer season might have led the league in the 70's and 80's, but been pretty ordinary in the late 90's. A 25 VIX was astronomical in 2006, but not so impressive in 1999. It's entirely possible a 25 VIX today is higher than we think, I have no idea. But if we are seeing signs of panic in other spots, I would suggest that's the case.

Yada yada yada, I like to use volatility subjectively anyway. The VIX averages something like a 20 over the course of time, but that doesn't mean a 20 is fair in every environment. So forget absolute numbers for a sec. Are options premiums cheap or elevated to the backdrop of July 8th, 2008? Eh, I'd say it's probably a mixed bag. Panic where panic is warranted, in financials. Maybe a bit too much complacency in momo/energy/ag sort of names. And indices kind of neither here nor there.

In any event, way too long between Melissa pics.