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Wednesday, May 16, 2012
VIX Futures in Overvalued Territory!
- The second chart shows a series of VIX front month futures prices. The futures over/under indicator compares the VIX front month futures price relative to FVEF on a % basis. At today's closing price of 24.40, it is 14.1% "overvalued" relative to FVEF indicator, which does not happen often.
- Now VIX & VIX futures prices are in a rising trend, and I had been predicting this rise for the past several weeks. With uncertainties of global economic health growing, volatility is expected to continue rising, but it is interesting to see that the FVE indicator has actually gone sideways the past few days.
- The current correction, while persistent, seems very orderly--more like buyers are waiting rather than running away. Are they waiting for a selling climax? or does the market need to rebound from oversold levels before we start to see greater price volatility in the underlying? If we do see a rebound, VIX futures prices could drop significantly because of the overvaluation.