What Today's VIX Spike Means for the S&P

The 14 level has marked a ceiling for the CBOE Volatility Index (VIX) since the November U.S. presidential election

Apr 11, 2017 at 1:24 PM
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The stock market is trading lower today, as increased anxiety over geopolitical developments in North Korea and Syria weigh on investor sentiment. The growing uncertainty is being reflected in the market's "fear gauge," with the CBOE Volatility Index (VIX) hitting an intraday high of 15.88 earlier -- its loftiest perch since Nov. 11 -- up 6.1% at last check to trade at 14.90. The VIX has now extended its week-to-date gain to 17.6%, while the S&P 500 Index (SPX) is down 0.3% over this same time frame. 

What makes this recent volatility spike so notable is that VIX 14 has "defined all closing peaks since the election," which Schaeffer's Senior V.P. of Research Todd Salamone noted in this week's Monday Morning Outlook. Salamone goes on to say that "a potential signpost that equities could be in for a corrective-type move would be a daily VIX close above 15, or multiple closes above the post-election closing high of 14.04." VIX has not closed above 15 since Nov. 8. 

However, in the near term, data suggests a short-term S&P bounce given the VIX's intraday move north of 14. Specifically, our quantitative analysis team looked at how the SPX has performed since early December after the VIX hit 14 in intraday trading. Counting one signal in every five-day period, there were three other times outside of yesterday's trading in which the VIX toppled the 14 mark. In the subsequent one- and two-week time frames after the signal, the S&P 500 posted significantly stronger returns compared to its anytime performance.

spx returns after vix hits 14

While 14 has served as a ceiling for VIX since the presidential election, 11.25 -- which marks half the pre-election closing high -- has been a floor. Since late December, VIX has touched 11.25 five times in intraday action, counting one time for each five-day period, and the SPX has turned in lower-than-average returns in the subsequent one- and two-week periods. While bearing in mind the very small size of this sample, Salamone notes that the data suggests traders buy SPX for one to two weeks if intraday VIX hits 14, and sell SPX over a similar short-term time frame if VIX touches 11.25 in intraday trading.

spx returns after vix hits 11_25

 

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