What to Make of a Perfectly Neutral Market

The VIX has cooled back down, and the SPX "troops" are in perfect equilibrium

Nov 23, 2015 at 9:26 AM
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It's hard to believe that one week ago I was writing about an overbought CBOE Volatility Index (VIX). Five trading days and 3.5% in the market later... not so much, any more. It took all of three trading days for VIX to go from 25% above the 10-day simple moving average to under again, which means I can update my chart (yay!).

VIX-SPY returns 1123

For the second "instance" in a row, the SPDR S&P 500 ETF Trust (SPY) bottomed on the first day VIX closed overbought, and then rallied strongly. Which I'm sure means it won't work so well the next go around.

Everything seems to suggest we're still in bull mode, and these are just pullbacks. Well, everything except the fact that the market still stops in this range, same as it kept doing pre-August.

Longer-term though, I do believe VIX is transitioning from the "low" regime that began in 2009-10. The median VIX in 2014 was 13.67, while this year so far it's 15.11. That's not a lot, but it's a very modest nudge higher. I'll guess it nudges higher still next year.

I'm not so sure that means the market will go lower, though. We did see this pattern in the mid-90s, and volatility -- and the market -- kept lifting for a few more years before the actual bubble.

Generally speaking, it's like the August dip never happened. The S&P 500 Index (SPX) "troops" are in almost perfect equilibrium. Literally half the SPX names sit above their 200-day moving averages now -- quite the recovery from the August lows near 20%.

SPX stocks above 200 dma 1123
Chart courtesy of StockCharts.com

CNN's Fear and Greed Index is now net Indifference and Indifference. The volatility component is... you guessed it... neutral. What's more, so is the put/call component.

CNN fear index 1123
Image courtesy of CNNMoney

It's tough to make the case for much of anything here. This week figures to be a snooze-a-rama with the holiday -- and then we have the Fed, though I'd note it feels like 98% of the inevitable rate hike is priced in now. That won't stop the Financial TV Obsess-a-thon, but it's not likely to cause a major market move at this point.

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

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