This VIX Signal Has Happened Just One Other Time

It's unusual to see both the SPX and VIX close the week higher

Senior Quantitative Analyst
Dec 6, 2017 at 8:05 AM
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Something strange happened last week as the S&P 500 Index (SPX) gained over 1.5%. The CBOE Volatility Index (VIX) spiked 18%. It's strange because those two indexes typically move in opposite directions. The VIX measures the implied volatility of S&P 500 options and it's often referred to as the market's "fear gauge." Stocks moving higher, like last week, would typically calm the fears of investors -- but according to the VIX, anxiety rose. Uncertainty about the fate of the tax bill might have played a part in the VIX's climb. This week, I'll look at prior instances where stocks moved higher and so did the VIX.

Previous S&P, VIX Divergence Signals

It's relatively rare for the VIX to be up at all when the S&P 500 gains at least 1.5% -- let alone 18% like last week. In fact, going back to 1990, when the VIX began trading, there have only been five other occasions when the SPX gained 1.5% in a week and the VIX was up double-digit percentage points. All of those happened in the 1990s. The only other time the VIX gained more than 18% was in January 1992.

To get more data points and more recent results, I looked at weeks where the stock index gained 1.5% and the VIX was simply positive. Using those parameters, there were 19 occurrences since 2000. The table below shows how the S&P 500 performed afterward.

Overall, the returns are slightly bullish. Oddly, the returns are bullish after two weeks, bearish after a month, and then bullish again three months later. So generally, in these situations, we've seen the momentum continue in the short term, followed by a pullback, and then continued bullishness.

spx average returns since 2000

These next tables show how the VIX did going forward. My initial thought about this data was that the VIX would see lower-than-usual returns going forward. My thinking was that whatever spiked the VIX during a bullish market move, would quickly dissipate barring a market pullback. The data supports my theory as the VIX shows declines at all time frames. This would be expected, given the slightly bullish S&P 500 returns from above -- but it's true even at the one-month time frame where the SPX underperforms.

vix returns since 2000

Finally, the charts below show the S&P 500 and the VIX with the individual signals marked. 

 spx closes week higher with vix signal

vix closes week higher with spx signal

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