Implied Volatility Levels Point to Bullishness in the Equities

When you look at the VIX, you are looking at the level of uncertainty in the market with respect to the natural tendency to go up I've mentioned before.

Currently this perceived uncertainty is coming down because of the Russian-Ukraine situation and few people see the Greece situation leading to any major european shake up.

The VIX is near the lower quartile of it's 50 day range as indicated by it's Williams R%  reading.

Another indication of lower uncertainty, is the term structure of the Implied Volatility as represented by the ratio VXZ to the VXX. The VXZ represents the medium term implied volatility while the VXX represents the short term implied volatility. As the gap between these two implied volatility increases, it indicates that hedgers are less uncertain about the short term. In other words, the implied volatility term structure is normal. When it flattens or becomes inverted, (short term implied volatility is higher than the medium term) it indicates current uncertainty is higher. Notice in the chart below how this ratio drops in mid october when the 10% correction of the S&P 500 was happening.

So in other words, the market is "Risk On".