Its cousin, the VXV, measures annualized volatility expectations over a three-month period, and on Friday that index closed at 13.62, which would imply a volatility expectation of plus or minus 4 percent over the next quarter—very much in line with the shorter-term VIX expectation. So even three months out, investors are NOT expecting any major trauma such as that 15-plus percent correction that so many strategists tell us is coming.
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Now with Memorial Day behind us, summer is in full swing and typically volumes tend to dry up, so we could see both these indexes move lower as investors/traders get more comfortable with the economy, Fed withdrawal and global central bank policies. Geo-politically there is no shortage of crises, yet both of these measures have discounted the impact as investors/traders do not expect any of these to derail global markets.
Look, we have been saying for a while now that the market is overvalued based upon the economy and all of the Fed stimulus, yet it moves higher as investors get more comfortable with the state of affairs—which could end up being the very reason that this summer may prove to be an opportunity as this complacency causes some to take excessive risk. A declining VIX in itself is not a bad thing, in fact, it signals stability over the long term, but it also tends to cause complacency and that is what will kick you in the head when the unexpected happens.
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