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When Russell 2000 and tech volatility lifted in a bigger way than big-cap volatility earlier this year, we often asked the question of how it would resolve. Would they just get dragged down by the relatively sluggish CBOE Volatility Index (VIX)?
Well, depending on your time frame, both answers were correct. Early on, it looked like small-cap vol was a blip. "Momentum" stocks looked ugly, but then ultimately recovered without any sort of major hit on the big-cap side.
This last move, though? Not so much. Russell volatility, as measured by the CBOE Russell 2000 Volatility Index (RVX), has indeed picked up.
It's still a bit away from the early April levels. VIX, on the other hand, came within just a few clicks of taking out its April highs. As such, the ratio between RVX and VIX has come way off the "records" set earlier this year.
Currently, it's not too far above more typical levels of around 1.25. And it's a similar story when you look at VIX vs. the CBOE Nasdaq-100 Volatility Index (VXN).
The spike last week bumped VXN and RVX a little vs. VIX, but we're still nowhere near the highs of last spring. So, it was really the overall grind into mid-July that pushed the relative levels back to recent norms. It's likely that if/when this current volatility spike settles in, that VIX will continue to hold up better than RVX and VXN.
Which means ... ?
Really not a whole lot, in my humble opinion. The whole spike earlier in the year had more to do with angst in momentum than anything else. I'm not sure that really presaged the action last week -- given that if it did, it took three to five months to transfer over. If we start using that as a time frame, we can pretty much correlate any two market moves. Which is fine, except how exactly do you base a trading or investment decision on that? This current volatility spike will surely predict another spike up in four to six months. Then again, so will anything else going on now, as that's about how often we see volatility spikes these days.
Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.