Does A Record Low VIX Have Any Predictive Power

Tyler Durden's picture

With the VIX index crashing to levels last seen some 938 days ago in 2014, and prior to that 3624 days ago in 2007 just prior to the financial crisis...


... many traders have asked does the VIX plunging to near record lows below 11 - a place they have been only 1.6% of the time since 1990 - have any predictive value for stocks.

According to Citi' Brent Donnelly, the answer is mixed.

Note that the VIX is now on a 10 handle which is a fairly rare occurrence. Out of 6,813 trading days since 1990, only 110 have been below 11 in VIX (1.6%). I looked to see if there is any forecasting value (i.e., does low VIX forecast future performance?) and the answer seems to be no. Sometimes, like 2006, VIX stays low for ages and stocks keep rocketing. Other times, like 2005, the low VIX precedes a stock market correction.

Unfortunately, since we now live in a world with $14 trillion in central bank liquidity, which means the current market is neither comparable to 2005 or 2007, the market will do whatever central banks decide it will do, regardless of where the VIX trades.

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agstacks's picture

Sure it does.  It means the water is nice and warm! Come on in!

"What the fuck just touched my leg!"

Raffie's picture

Yellen and friends fixing the VIX to screw overe President Trump?

GGuy's picture
GGuy (not verified) Raffie Jan 26, 2017 3:22 PM

Peak ManipliJOOlation?

BandGap's picture

That fuse has been lit already. Waiting for the detonation.

PMs, cash or ammunition this week?

1980XLS's picture

The only thing certain is that UVXY goes down over time, regardless of the Vix.

Just do a 6 year chart on UVXY and see.

BlueHorseShoeLovesDT's picture

UVXY has horrid decay, buying it is worse than the decline of driving a new car off the lot

GoldenDonuts's picture

It was master of the universe looking for his BJ

Vinividivinci's picture

Answer: No.
If ZH taught me anything, it's that there are no mark-its and price discovery is long dead.
Everything is why not the VIX as well ?!

SomethingSomethingDarkSide's picture

Think about who prices the VIX, and if they have any special interests..

Creative_Destruct's picture

"...there are no mark-its and price discovery" 


hotrod's picture

YES,  That it is all RIGGED.

BlueHorseShoeLovesDT's picture


The only thing Vix is good for is shorting before it gets smacked every day

agstacks's picture

It's just like intrest rates being at all time lows; we've never been a more qualified buyer..right?

vq1's picture

I'll admit it.......


I'm bag holding vxx....


And proud of it  ;)

shizzledizzle's picture

I'd rather buy long out of the money puts.


$14 trillion of QE Infinity spread out over a decade does NOT constitute L I Q U I D I T Y in an environment of a USD crash along with a plateaued overvalued Stock Market-High Valuations, and a price tag of $20 trillion in DEFICIT with $200 trillion in unsupported LIABILITIES. Low VIX is significant empirically to gubbermint coffers, methinks!


CRASH in 5,4,3,2,1,0...tick, tick, tick, tick, B O O M.


Don't forget to stock up on weed.

Arnold's picture

I was just reading of cannabis hallucinations in 'The Insidious Dr Fu Manchu' by Sax Rohmer.

I thought of you, and recognized the symptomology.

Sometimes lucid, often not.


Arnold may now get in line to lick my balls in deference to my intellect & intelligence over his own as of Monday afternoon.


NOTE: PLEASE do NOT fraternize with the CIA members in the line as you approach the ball licking Alter of Deference, Arnold!

Arnold's picture

Low volume implys low option activity, I beleive.

P+C on which VIX is calculated is subdued.

What the gainers have going for them I have no Idea.

My best guess is that there is some buyback and alot of breath holding before the disaster.

Much of the portfolios have been rebalanced by now,

And poised for the arrival of The Great Black Swan.

Turin Turambar's picture

VIX is a central bank lever to keep the market propped up.  And your surprised that it's near all-time lows with the market at all-time highs?  Since VIX is manipulated, it's going to be whatever our fiscal overlords desire it to be.  Got it?

BlueHorseShoeLovesDT's picture

It is a great short, you know they are going to smack it, almost daily now.

ThanksIwillHaveAnother's picture

Yes, it is false measure that is well after the fact. 

scuttlebutt's picture

Look at the svxy. Reverse of the the tradable vix. That would have been a nice trade over the past year. Oh well.

Just like the uvxy will be a great trade sometime soon, just not yet.

Little fact: The Vix has closed below ten only nine times before. Is the tenth on the horizon?

I think so.

BlueHorseShoeLovesDT's picture

UVXY long is never ever a good trade

besnook's picture

the vix used to be a pretty autonymous measure of risk. since the dawn of the quants and the hf bot trading it is a gamed indicator just like the rest of the market is a false picture. my question is whether there are even enopugh human traders out there to bring the market down. is a 2009 meltdown even possible anymore?

youngman's picture

You know...but then you have that New Zealand real estate company whos stock jumped 600% and they are still you see ..its out there...its all out there

wide angle tree's picture

All it means is that the markets are rigged.