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Where VIX Stands In Our 'Sell the News' Phase

Markets appear to be 'complacently ugly' at the moment

Sep 23, 2015 at 10:00 AM
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The more things change, the more they stay the same. We had another ugly day yesterday thanks to (pick one):

  1. Volkswagen
  2. China
  3. The Fed
  4. All of the above
  5. None of the above

I'll answer that: it's either A or B, though I have no idea. We do seem to really hate the Fed's decision not to hike. TV tells me it's because the Fed missed their opportunity to hike. I'm not sure that makes any sense, though. If they now won't be able to hike in October or December then ... well, what was the purpose of hiking now in the first place? Would hiking now have made those later hikes an achievable goal? In a related story, why is that a desired goal?

But I'm kind of rambling, I don't think any of that explains the market action. It seems more likely that we had basically discounted no hikes, and now we're in a sort of "sell the news" phase. Remember all the way back to last week, we had actually done quite well (relatively speaking) heading into the news. I can't prove it, but I'd guess that a hike would have surprised the market and we'd have sold off anyway.

Regardless, we're back in a range like we were in for most of the first (almost) eight months of 2015. The only difference is we're a bit more volatile within that range. The CBOE Volatility Index (VIX) in the low-to-mid-20s suggests we'll see ranges of about 1.5% in two-thirds of trading days. The flip side is that one-third of the days should see moves greater than that. VIX was in the mid-teens ahead of the August drop, so it at least suggests we're now more cushioned for moves like we saw yesterday.

By and large, we seem closer to a new equilibrium. VIX futures expect a low-20s VIX out as far as the eye can see.


The CNN Fear and Greed index is one big "eh": 


 We were down around 5 in there last month. As far as individual stocks go ... well, the majority sit in "bear" markets, if you define that as trading below their 200-day simple moving average.

Chart courtesy of

We bottomed (so far) with about 20% still above their 200-day moving average, and that measure has rallied up to about 30%. If we're in a muted replay of 2011, we probably still have another month or so before this sort of measure turns around. We remain somewhat complacently ugly overall. Perhaps we need something more outright ugly and over-bearish before we make a more important turn.

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


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