This Bearish Signal Has Sounded Just Twice Since the Dot-Com Bubble

The CBOE Volatility Index (VIX) hasn't staged a notable rally the same day as an S&P 500 Index (SPX) record high since February 2015, setting of a stock signal seen just twice since 1999

Dec 8, 2016 at 2:56 PM
facebook twitter linkedin

Record highs for the S&P 500 Index (SPX) have grown almost commonplace since the presidential election, and today is no exception. However, what is unusual is that while the SPX is flirting with all-time highs, the CBOE Volatility Index (VIX) -- or the "fear gauge," as some call it -- is also set to close notably higher. According to data from Schaeffer's Senior Quantitative Analyst Rocky White and Quantitative Analyst Chris Prybal, this could set off a bearish signal seen just twice since 1999.
At last check, the VIX is 6.6% higher at 13.03, and the S&P is just off a record best, encroaching on the 2,500 area. The last time the VIX increased by 5% or more on the same day the SPX hit an all-time high was February 2015, and before that November 2014. Prior to that, you'd have to go back to December 1999 to find a signal.

VIX SPX signal Dec 8 

What's more, the signal -- sounded just 23 times since 1990 -- tends to precede a bout of short-term weakness for stocks. The S&P averages a loss both one day, week, and month after a signal, and has averaged a subsequent three-month return of just 0.77%. Further, the highest percent positive after a signal is 56.5% (one week), with the S&P in the black just 30.4% of the time one month after.

For comparison, the S&P has averaged anytime gains across the board since 1990, with a three-month return of 2.04%. Further, the lowest percent positive is 53.3% (next-day), with the SPX sporting a 67.7% shot of being higher three months out. 

VIX SPX 2 Dec 8

VIX SPX 3 Dec 8

The paltry three-month return after a VIX signal is even more dire when compared to the SPX's average gain of 2.39% after making an all-time high, going back to 1990. What's more, the SPX has been higher 70.7% of the time three months beyond a record peak. However, considering stocks' rapid-fire ascent in the past month, "a short-term consolidation to work off overbought levels would not be a surprise," as Schaeffer's Senior V.P. of Research Todd Salamone recently stated.

VIX SPX 4 Dec 8

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!

Begin the New Year With Schaeffer's 7 FREE 2022 Stock Picks!



Special Offers from Schaeffer's Trading Partners