When Will This Bull Run Be Over? Using the VIX/VXV Ratio as a Signal
Vance Harwood | Feb 08, 2012 11:34PM ET
If you can remember market action for more than two months, you’re probably not wondering: “XVZ volatility ETN . When the ratio climbs to 0.90 or above they decrease their allocation into short volatility.
The chart shows that the VIX/VXV ratio rose above 0.9 several times in 2011 before the correction—false alarms.
However those bumps were accompanied by relatively big moves in the VIX index. It could be that the VIX/VXV ratio bumps that aren’t associated with significant overall jumps in volatility might be the signals to really watch.
I fully expect the VIX/VXV ratio to sound some false alarms in the future, but when it says the risk is low, with levels below 0.9, I’m inclined to relax.
The market closed yesterday with a VIX/VXV ratio of 0.878—I guess I’ll hold inverse volatility a bit longer.
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