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It’s all about expectations. I get the front-month VIX is different than the term-structure of volatility’s curve. Looking at expectations, across durations, will amplify my point:

  1. VIX (front-month) TREND resistance = 17.18, and that was only violated to the upside for ½ a day
  2. VIX topped on Monday at another lower long-term-high (on DEC28, 2012 the lower-high = 22.72)
  3. VIX was at 40 in Q1 of 2010 after we were legitimately concerned about European Dominos

As you can see in the Darius Dale’s Chart of The Day, front-month Volatility (VIX) continues to make a series of long-term lower highs as the volume of the manic media’s freak-outs make higher-highs. Think they’ll make the call on the end of the world, together?

If this is just a mini-mania of what you saw in November-December (substitute Italy for US Congress), what is it, specifically, that you have a as a catalyst that would stop the VIX from going straight back down to 12 from here?

It’s not going to 12 this week. I get that. But the VIX is probably not going back to 22.72 or 42.96 (the SEP2011 freak-out) this week either. If I see anything real developing that changes my view on this, I’ll just change my mind. I don’t have to do that yet, thank God.

Selling fear has been working since we turned bullish on US stocks in late November.

KM