WHAT THE VIX'S 4-MONTH STREAK MEANS FOR STOCKS

 

 

By Rocky White 

A recent MarketWatch article caught my eye, pointing out that the Cboe Volatility Index (VIX) has been above 15 for about four months now -- its longest streak since 2012. For those unfamiliar with the VIX, it’s calculated using options on the S&P 500 Index (SPX). The more option traders are paying for SPX options, the higher the VIX. More precisely, the VIX is the expected volatility of the S&P 500 Index over the next 30 days, as measured by the options.

The chart below shows the S&P and VIX since 2014. The VIX typically moves the opposite of stocks. So, when stocks collapsed in December, you saw the VIX reach its highest level since February. Despite the 16% rally in the S&P 500 Index since Christmas Eve, the VIX remains stubbornly above the 15 level. This week, I’ll look at what has happened in the past when the VIX breaks 15 after long streaks above that level. Also, I’ll compare the VIX to a couple of other measures of volatility to see if we can determine whether it’s too high or not.

Read more here.