The Grexit: Can We Just Get the Fear Spike Over With?

The VIX is sitting north of 15, but it could be due for more upside

Jun 16, 2015 at 7:30 AM
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Looks like the long awaited "Grexit" is here. Wahoo! (Full disclosure: I hate those made-up combo words like "Grexit" and "Brangelina" and "A-Rod.") 

What does it all mean? Well, I don't really know. 

I'm fairly certain it's mostly factored into the marketplace, since this story has hung around longer than the actual Greek Empire. The fear is that it has set off a disastrous chain of events a la the Lehman Contagion in 2008. 

The best case is, I suppose, that it's a contained non-event, especially as it pertains to us. Who knows? Maybe it ultimately pushes money out of German stocks and into U.S. stocks. 

The reality is very likely in the middle somewhere. Everyone's looking for a catalyst to set us into a bear move. Now we have one: Greece! Whatever effect a Greek default has on us will not materialize for a while, but if we happen to go into an ugly stretch now, well, we'll forever tie the stall/end of the bull to Greece. 

Upon first glance, it doesn't look like we're in a Panic Cycle just yet. The CNN Money Fear & Greed Index has tipped into Extreme Fear. 

But hey, don't blame options! We're the best factor out there -- Market Volatility is only in "Fear!"

Yes, it's hardly a swarm just yet. The CBOE Volatility Index (VIX) is in the 15s, and thanks to our recent wave of modestly higher volatility, we're nowhere near going overbought vs. the moving averages. The 10-day simple moving average (SMA) of VIX is a shade over 14 right now. We'd need to see VIX close above 17 to get it 20% above its 10-day SMA. 

That could happen today or tomorrow of course; it doesn't take much to get the Fear juice really going. That would actually be best-case scenario, in my humble opinion, if you're rooting for a rally. We're a jittery market in search of an extreme. Worst-case scenario is if we stay ugly, but not ugly enough, with options vol nudging higher in an orderly fashion. We saw that happen last fall and it took a while for the sell-off to play itself out. 

It's been a while since we went "officially" overbought. Our last VIX close 20% above its 10-day SMA happened in early January, so it's five-plus months in something that tends to happen about every 3-4 months. I'm bullish, or at least rooting for the bullish, but I'd rather see us just get this inevitable Fear Spike over with already. 

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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