VIX vexing? views to getting a better fix on the VIX

The volatility index which we usually track with VIX has been somewhat vexing as it didn't simply rebound from the 33.81 Fibonacci retrace level I've focused on so much. Fancy that! Instead, it's either resonating around that number, or its fixing to dig to yet lower levels. It's been enough to make me look at an article with this headline: VIX DEATH BY CHINESE WATER TORTURE at The Pragmatic Capitalist blog (5/5/09)! And Bill Luby has weighed in once again with his good observations about the VIX, with VIX: How Low Can It Go? at SeekingAlpha (5/8/09). Am I supposed to chalk this up to Mercury retrograde?! Below is my VIX chart where I've pointed out that 3 touches along the downtrending channel line I've marked, is reason to look for at least another pullback upward in VIX. I've also noted that the deeper .786 retrace back to the February 2007 lows would be at 24.80, although Bill Luby in his article makes a case that "the VIX is not likely to breach a floor of 25-27."

The second chart below is something new - a ratio chart of VXX to VXZ. VXX is the new VIX exchange-traded fund (ETF) that tracks a one-month VIX future maturity; VXZ is the ETF that tracks the five-month maturity. I decided a ratio chart would be interesting to see a snapshot of complacency for the near-term versus the short term. Perhaps not surprisingly, it's showing this ratio as also digging to a low. It looks like there may be positive divergence on this ratio too. For that matter, I can think that it displayed a five-wave pattern down; but perhaps this only tells us that short-term and longer-term complacency are due to converge more closely.

Also below are Tony Caldaro's charts of the VIX (daily and weekly), and CPC (weekly) for an additional snapshot of sentiment. There are slight, slight hints of positive divergence in the VIX charts, although not glaring. I do think these charts provide additional reasons for "dancing close to the door" as that one analyst says of the equity markets. So a reversal pattern in the charts of the VIX and the equity markets may not be too far away ... we'll just have to continue to keep an eye out for such a reversal pattern to confirm. There is a slight tendency for the VIX to rise a bit on Mondays and fall a bit on Fridays (apparently as traders take out "insurance" for the trading week and then relinquish it), so we'll have to look past small squiggles like that. Either Monday would have to be a strong movement up, or Tuesday would provide an initiating move up, and then we'd look for followthrough if VIX moves above nearby lines marking the upper bound of its recent channel descent.