The VIX Just Did This for the First Time Since the Financial Crisis

The CBOE Volatility Index (VIX) hasn't suffered a six-week losing streak since August 2008

Aug 9, 2016 at 2:07 PM
facebook twitter linkedin

The CBOE Volatility Index (VIX) just hit an annual low of 11.12, and has dropped more than 55% since its post-"Brexit"-vote peak of 26.72 on June 27 (a day the VIX ultimately closed lower with stocks, triggering a signal not seen since April 2009). In fact, the market's "fear gauge" hasn't closed higher for more than two straight days since its five-day winning streak in mid-June, and just wrapped up its worst six-week stretch since the height of the financial crisis, in August 2008. But what could the VIX's weekly losing streak mean for the S&P 500 Index (SPX)

Going back to 1990, this is just the fifth time ever the VIX has suffered a six-week losing streak, the last time being nearly eight years ago, mid-recession. The current streak has been the worst ever for the VIX, resulting in a 55.8% decline, according to Schaeffer's Senior Quantitative Analyst Rocky White. The S&P, meanwhile, has surged to record highs, rallying 7.1% -- in the middle of the pack, as far as historic returns during VIX plunges.


Following the last VIX six-week losing streak, it was a pretty brutal time for the SPX -- though again, that was in the heart of the financial crisis. The S&P was down 3.9% two weeks later, while the VIX had bounced back 22.6%. Going out even further, the S&P was 38.1% lower three months after a VIX signal, while the VIX itself had nearly quadrupled.

Averaging S&P returns after the past four VIX signals, it doesn't look pretty at any of the near-term checkpoints. However, the numbers are heavily skewed by the ugly stretches in 2001 and 2008. After the VIX signals in 1992 and 2003, the S&P actually muscled higher in the near term. At the same time, the VIX has averaged a positive return at each checkpoint, up nearly 77% three months post-signal, though that's also heavily skewed by 2008.


In conclusion, the sample size is really too small to draw any solid conclusions about where the S&P might be headed after this last VIX losing streak. However, if large speculators in the VIX futures market are wrong again, we could be at risk of a volatility pop.


Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!

Special Offers from Schaeffer's Trading Partners