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Is the VIX meaningless?


Hey, isn't it way above its average now?


Toddo answered a question on Buzz & Banter about the usefulness of the VXO. I watch the VIX as opposed to the VXO (they're pretty much interchangeable), a chart of which is below.

Absolute levels in the VIX are meaningless to me, unless we get to something ridiculous like 40 or 50 in a panic situation. The chart below shows Bollinger Bands around the VIX, using a 63-day moving average (about three months, or one quarter) and bands that are 2 standard deviations from that average.

The red circles on the SPX show those times the VIX was relatively low; the green ones show when it was relatively high (not the inverse scale on the VIX). That's useful to me, at least as one input in a larger attempt to gauge risk.

It is now more than 2 standard deviations from its quarterly average, which has been a good "buy" signal lately. As I've noted recently, I think we're close (within 5-10 days) of a tradeable low, and this is one reason why.

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