Complacent Correction Cause For Concern?
Despite recent stock market carnage, the reaction by the VIX has been a relative yawner.
Well, the New Year hangover continues. Another day, another drubbing in the stock market. With indices pushing double digit losses just 8 days into the new year, it certainly seems reasonable to expect some panic on the part of investors. However, at least based on one metric, market participants have remained relatively calm – even unprecedentedly so.
The metric we are referring to is the VIX, or the Volatility Index on the S&P 500. The VIX, a.k.a., the “Fear Gauge”, measures the expected volatility of the index. During times of crisis, or even a garden variety stock market decline, one can expect the VIX to rise. That has indeed been the case during the current stock weakness. However, based on the magnitude of the S&P 500′s decline, the VIX has risen by a historically small amount.
Specifically, the S&P 500 has now dropped over 9% in the past 2 weeks. Despite that, the VIX has risen to just 25.22. Since 1987 (the VIX’ inception was in 1986), there have been 129 days on which the S&P 500 was down as much as 7% over the past 2 weeks. Today’s VIX reading is the lowest of any of those days.
So what gives? Is this a sign of relative complacency despite the sharp market losses? That is a reasonable thesis, especially upon quantitative examination. Looking at the prior 128 days that showed a 2-week S&P 500 decline of at least 7%, just 15 had a VIX reading of less than 34. Now, this 34 level is an arbitrary number, but it seems about as good a delineating level as any. Here are the previous days matching those conditions:
10/15/1987
8/4/1998
8/5/1998
2/21/2001
9/10/2001
7/2/2002
1/17/2008
1/22/2008
3/10/2008
7/1/2010
7/2/2010
7/6/2010
8/4/2011
8/5/2011
9/1/2015
In general, these occurrences led to further weakness in stocks. Indeed, despite the big drop already, these conditions often marked a point closer to the beginning of a decline than an ending. Whether it was immediately (e.g., the crash in 1987, September 2001 or early August 2011) or a few weeks and months later, further weakness was the norm. The 2010 dates really represent the exception as the market would rebound immediately. Excluding that period, however, here are some statistic on the S&P 500′s performance going forward.
As you can see, the results don’t paint a very rosy picture, despite the fact that the S&P 500 has already taken its licks. So does the “complacency” explanation hold water here. We’re not sure – nor do we really care. All we really care about are the cold, hard numbers. And if history is any guide, investors, who have demonstrated a rather complacent reaction to the decline so far, may very well get a wake up call before this slump has run its course.
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More from Dana Lyons, JLFMI and My401kPro.
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the great fleecing of '16
Nothing to see here. Believe it or not the FED out smarted the world once again. I did not think it could be done again after 2008. They just did it. Dollar will be strong until they announce QE4, then it will weaken back to a normal 75-85. And the stocks will reach ATH's again.
Wake up call: "Yoo hoo, honey, I'm home!"
"So where the fuck you been the last 8 years, asshole?"
No one will lose confidence in the US dollar but they will in every other currency. There will be record Tbill sales with ultra low interest rates on them. Housing will reach new highs as the world continues to let us spend and borrow with zero or negative rates. No one will call our bluff. Americans will continue to become more dumbed down as more and more will get hurt by walking into things while looking at "smart" phones. Meanwhile I will continue with my dumbphone and make fun of most retarded Americans who watch the NFL and TV. I will continue to call them sport dorks. I will most likely contiune to post on ZH, God only knows why because we are the losing team, big time. I will prolly piss off most ZHers because the truth hurts.
Sorry, but I had to answer the question that was asked by the headline. I'm sorry it's not what you wanted to hear.
VIX is now a market rigging tool. Why are you wasting your time trying to use it to discern anything at all? SMH
...and this will be your downfall. Or maybe mine.
There's never a bad reason for a collapse.
I own mutual funds, they're managed. :)
What's there to be worried about when you have a sweet old grandmotherly type watching your back? Quick story about gandmas. I had one who swwmed sweet as could be until one day she noticed my pockets buldging with change. (I had dug it out from my grandfather's lounge chair). Anyway I mumbled some fib and her response to me was "you better tell me the truth or God is going to send a bolt of lightning right through that window and strike you dead". I never looked at her quite the same.
Oh, so THAT'S why you don't like Janet Yellen. That explains a lot. I only hate her because she just doesn't have Bernanke's chops for throwing freshly minted money at every problem- a skill we're going to sorely miss in the next part of the collaspe.
Yeah I know right? Makes our jobs a lot easier when every statement is up.
Sharia Law in America will put an end to the Granny Parade.
cnn money fear index has been stuck at "extreme fear" for as long as I can remember.
extreme greed <- greed <-> fear -> extreme fear - extreme complacency
fetal position, right before you're slain.
or a great buying opportunity!
the selling isn't real and neither is the buying, so no. just enjoy the show.
To hold things together they buy the S&P mini-futures and smash the VIX. Anyone betting the VIX, it's an uphill battle. The MO as of late, when the S&P goes up 20 points the VIX drops 10%, when the S&P goes down 20 points the XIX goes up 5%(rough numbers used) so you have to be more right betting with VIX than against it.
Look at the charts, [short term]. Everytime sellers enter the casino, the cartel of invisible bidders starts buying. The divergence on my short term chart technical indicators is laughable.
You can see selling pressure, but then sudden bids out of nowhere to float/support the price. It's pretty obvious there's an[un~natural] concerted effort to support market levels.
I agree there is something underhanded going on but the meme needs to let this decline another 10% or so otherwise the rate hike stop and QE5 discussions can't be had and the Fed knows they need to be able to do this by March...expect the bid rigging to go silent tomorrow into next week as this has to be bad enough to quickly turn the spigots on again for Yellen to save face "with unexpectedly accelerating deterioration in fundamentals, we have decided to suspend, yadi yadi...." and we ain't there.
Yeah, be we haven't caught them red-handed doing it yet. I think that needs to happen to destroy their last bit of credibility and begin the collapse in confidence needed to start a market rout that nobody can stop.
I agree with both you gentlemen. I don't think they care about being caught, this late in the ponzi.
At this point, they're just a bunch of monkeys slinging feces on the whirling fan, hoping something sticks.
When I hear supposed [high net worth] money managers saying they see growth in Japan and Europe this year ? It makes me want to take a long shower, with a bottle of Tequila.
One thing Zero Hedge has taught me... is the time line for how long it takes for things to happen is very long.
Gradually, then suddenly.
Top 3 market rigging tools (aside from PPT):
1. USD/JPY
2. VIX
3. Oil
GOLD,,,
I covered my XAU shorts earlier and the $usd is trading sideways. The equity markets have gone full laser attached to head of shark retarded!
"Complacency" = Positioning to profit in the inevitable resumption of monetization of... everything.