How much lower can this thing go? I recognize that you cannot buy or sell the VIX, per se. But we know there are plenty derivative (of a derivative [the VIX], of derivatives [options]) ETF instruments to play volatility. Simply put, the VIX could easily sink into the single digits before the current bull market ends.

Currently, the VIX sits above 12. More importantly, equity bears will argue the VIX has yet to make a fresh low in February while we know the major indices have been pushing higher. This could be agued as a bearish divergence to price. Recall the bullish divergence we noted last fall on the VIX vis-a-vis the S&P. Indeed, that divergence served as well not look for a bottom and certainly no to become too bearish last New Year’s Eve amidst the Fiscal Cliff panic.

Divergences do not always pan out with the indicator winning out over price, though. Instead, the VIX could easily roll over and play “catch up” to price making new highs. One thing for sure–The VIX can remain rational in a low volatility environment longer than you VXX long can remain solvent.

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