Volatility Correction

The China market has been overheated over the past year, and has finally made its much needed correction. The best tracker for China is perhaps the FXI index of the 25 largest domestic companies. This fund has gone up 80% in 2006, and was begging for correction. Unfortunately the correction came and seemed to spark a massive sell-off in US and world equities. This too could be largely anticipated because the volatility index ^VXI has been so low. Basically, there has been less and less volatility over the past 3 years. So this correction single handedly created a spike in the ^VXI that seems to most closely mirror a pattern last seen in 94-95, and suggests an instantaneous "fear factor" akin to 9/11/2001. Seeing how there is no comparison as far as context for the correction, perhaps it will be short-lived and not indicate a general downturn of the markets.