On Friday the VXN closed at a new high. If it were a stock or an index, one would believe that the VXN is heading higher. Can one in fact treat this chart pattern as if it were a stock or an index? (April 9, 2001)

  It is true that the VXN and the VIX are measures of emotion, and thus are similar to stock charts that graph investor emotion. They track the volatility of index options; for example, the VIX tracks the volatility of near term, at the money OEX options. The volatility component of options is a much more nebulous measure of emotion. On a stock chart we have price and volume; in tandem these give a very good picture of investor emotion as a stock traces out a signature pattern. Volatility on an option contract runs higher and lower without the same tie necessarily to volume, and thus it is much more difficult to say based on the chart that it will move higher or lower. What it is good at showing us are comparative values that have resulted in up and down moves in the indexes. When it hits a certain level it tends to bounce the other way in an inverse move to the index. Drawing conclusions beyond that, however, is difficult. You use it to forecast what the index is going to do, but it is not a good predictor of what the volatility index itself is going to do.

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