Markets have been strangely calm in the past few weeks. Why is that a problem? Well, the markets were very uncalm in August through November 2011, and the underlying conditions have not changed since then. Europe is still a mess (actually, ever more so as Greece teeters on the brink of default and several European countries are downgraded by S&P), the US debt problems are unsolved, and earnings are unexciting.
The fear index – volatility (^VIX) – is lowering but I do not think that this is sustainable.
I predict that the VIX will rise materially within the next month. To trade this prediction, I could buy an ETF that mimics the VIX, such as VXX (VXX), which is currently $31.49.
One month later, on 17th February, the VXX closed at $26.60. This was a bad prediction. Conclusion: I’m not ready to try trading the VIX!