The 'Fear Gauge' Signal Not Seen Since April 2009

The VIX has closed lower the same day as an S&P drop of 1.5% or more just seven times since 2000

by Andrea Kramer

Published on Jun 27, 2016 at 3:41 PM
Updated on Jun 27, 2016 at 4:14 PM

Stocks are on pace to suffer their worst two-day slide since August 2015, as "Brexit" anxiety pushes the broad-market indexes south of their 200-day moving averages. However, while the S&P 500 Index (SPX) is on pace to end the day 1.9% lower, at last check, the CBOE Volatility Index (VIX) -- often dubbed the market's "fear gauge" -- is also set to end the day in the red. According to data from Schaeffer's Quantitative Analyst Chris Prybal, this sets us up for a signal not seen since April 2009.

The VIX has closed lower the same day as an S&P drop of 1.5% or more just seven times since 1990, using 20 trading days between signals. In fact, three of these seven signals occurred at the tail end of the financial crisis, between December 2008 and April 2009. Prior to that stretch, it had been roughly six years between signals, with three between September 2001 and August 2002.

June 27 SPX VIX Signal

The S&P has been positive more than 71% of the time, on average, going out five, 10, and 20 days after a signal -- notably better than its anytime percent-positive during the same time frames since 1990. While the post-signal percent-positive averages start to underperform at the 40-day marker, the standard deviation and average S&P returns after a signal are significantly higher than usual across the board. In other words, this signal has tended to precede both more volatility than usual, as well as bigger-than-average gains.

For instance, the SPX averages a 10-day gain of 4.3% over the 10 subsequent sessions after a signal -- 14 times the anytime 10-day return of just 0.3%, on average. Likewise, the broad-market barometer averages a return of 9.1% 126 days after a signal -- more than double its typical 126-day return of 4.1%. Following the past two signals, in February and April 2009, the SPX was up 36.6% and 29.3%, respectively, going out 126 days.

June 27 SPX VIX Signal 2

June 27 SPX VIX Signal 3

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