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Will VIX Maintain a Longer-Term Uptrend?


Yes -- as long as it doesn't revert back to the lower teens for another two years.


This thought on the VIX yesterday from MKM Partners.

Spot VIX and the S&P 500 Index have traced out paths similar to historical cycles since the current volatility aftershock began on January 11. Given this precedent, we continue to expect spot VIX to be exhausted in the 30-35 range and the S&P 500 Index to trough around 1020. With the March VIX future at 21.65, we recommend upside volatility exposure via March 22.5/27.5 call spreads that are offered at $0.85, and we would also position for downside in semiconductors and real estate, two industry groups that have outperformed since the February 8 low, through April expiration.

VIX obviously down a little after they wrote that up, so if you agree with the idea, price is a little better.

Do I agree? Eh. I think volatility ultimately drifts lower thanks mainly to the fact that realized volatility is just brutally pathetic. MKM's basic thesis is that this mini upcycle in the VIX has one more blast into the low 30s. Of course there's no way to say that won't happen. And longer term, they believe we're in the middle of a five-to-six-year-strong VIX cycle.

The history of the VIX is indeed longer-term uptrends and downtrends. We troughed in early 2007. But we can stay true to that longer-term uptrend so long as we don't revert back to the lower teens for another two years.

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