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The VIX In An Age Of Major Poltical Risk

Many eyes are watching the VIX as it has not decayed recently and made another new low.  This holding pattern could be due to concerns over Russia possibly invading the Ukraine (who believes them when they say "nyet"), concerns over lackluster earnings, the dreaded "taper", fear of rising rates and a long-in-the-tooth bull run. 

Looking back over recent history, the VIX did a similar basing in the Spring/Summer of 2013 when each month, there seemed to be a "fear" the Fed would announce removing their foot from the QE gas pedal during their FOMC meeting.  18 Italian banks being downgraded just poured more fuel on that short term fire spiking it even higher.  Of course, the market recovered but there seems to be much more going on behind the curtain at this point.…

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Lazlo Birinyi and his associates recently completed a study of the VIX. Their conclusions were that the VIX is not a very good indicator of future market movements. Instead, it is simply a mirror image of current market conditions. Their conclusions prompted me to look at the VIX over the past twenty years. Truth be told, GT made me do it. LOL He brought the study up in chat and challenged me to back up any argument for or against with real statistics. Always good advice...

First, let me state that I agree with Mr. Birinyi's conclusion. I overlayed a chart of the S & P 500 on a chart of the VIX from 1990 to present. At least on the surface, it even looks like a mirror image. Granted, I do not have the time nor the inclination to replicate his study methods. Anecdotally at least, it looks like he is on to something.

Next, I became curious if the VIX had any other uses outside of options strategies or if there was a VIX trade with a high…

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