Some interesting pondering on the VIX, highly relevant as we are shorting July VIX futures here:
Evan Lucas, market strategist at IG, expects the CBOE Volatility index, known as the VIX VIX, +10.01% to average above 17.3 ( the yearly average over past 25 years) for 2016. The VIX is a forward-looking indicator that shows the market’s expectations of 30-day volatility. A value above 30 is associated with big volatility, while below 20 indicates a less stressful market (Investopedia).
He rattles off four scenarios under which the VIX could spike this year:
1) Signs of hyperinflation could start to appear from the seven-year bull market that has been brought on by the Fed’s quantitative easing program, which then leads to a sharp correction for stocks.
2) Contraction continues to show up in readings on manufacturing and industrial production. In other words, expect more of the same from last week’s dismal ISM numbers. (Read: Why stock market investors should worry about ISM’s downtrend)
3) People’s Bank of China shocks the market with a sharp devaluation. Lucas says pay attention to the ramping up of Chinese stimulus programs in the past week (including Monday) ahead of the Feb. 8 Lunar New Year’s break.
4) Employment starts to feel a squeeze and slow. Friday’s nonfarm payrolls might offer a clue. Read all of Lucas’s thoughts here.
Which of these four scenarios is going to goose the VIX? - MarketWatch
The first scenario is clearly rubbish, but the rest are not.