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What Happened The Last Two Times VIX Closed Below 15%?

Tyler Durden's picture


VIX has only rarely traded below 15% during 'new normal' times. The period from 2004 to early 2007, the so-called 'Great Moderation', saw VIX average 13.6% - at the time stunningly low (and notably where VIX closed yesterday). While looking at VIX alone can be misleading (with regard to the term structure differences and realized vol premia), it is nevertheless a gauge of market's expectations of return volatility in the short-term - however contemporaneous that is. Following the two times that VIX first closed below 15%, the S&P 500 has suffered from a 5.25% and 7.75% plunge in the following two months - and each time saw a quick post-VIX-plunge pop in stocks that provided better entry levels for shorts. High Yield credit also stumbled hard widening 80 and 150bps respectively.


Longer-term VIX has only rarely traded at these levels...


and the last two times showed significant retracements in April 2011...


and March 2012...

and should you be looking for a position, it would appear the S&P is a 'better' short (given its richness to high-yield credit)...


Charts: Bloomberg

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Tue, 08/14/2012 - 13:50 | 2704365 realtick
realtick's picture

The INVERSE VIX is setting up for a devasting collapse lower:



Tue, 08/14/2012 - 14:13 | 2704451 vast-dom
vast-dom's picture

charts are essentially meaningless today. why? QE, ZIRP, shadow QE, shadow books, algos, you fucking name it! if we were to study charts we'd be at SP below 800 last year! It's ALL fucked!

Tue, 08/14/2012 - 14:15 | 2704469 ATG
ATG's picture

Capitulation wet towel anyone?...

Tue, 08/14/2012 - 14:23 | 2704498 eurusdog
eurusdog's picture

Until they aren't. The planners can only hold the line so long.

Tue, 08/14/2012 - 17:10 | 2705037 B-rock
B-rock's picture

No, charts are totally relevant intraday... Technicals are exactly what algos trade on...  Day-trading these days is amazingly easy... Just follow a 5 minute ES chart and use a shorter timeframe chart for entries. Piece. Of. Cake.  Follow the Robot.

Tue, 08/14/2012 - 17:47 | 2705103 Iconoclast
Iconoclast's picture

Follow the robot? Lol..these will be the no spread robots, working for IBs, that are in and out in the blink of a blink of an eye? While you wait for your market maker (oh sorry ndd/stp/ECN broker) to execute your trade from your platform, which relies on upload speeds on 0.5 mbs from your wf fi connection? Nope don't go there, trade off dailies or weeklies, anything else is madness.

The closer you get to their game the more you're being gamed..

Tue, 08/14/2012 - 17:36 | 2705083 Iconoclast
Iconoclast's picture

Good post, even if you didn't 'believe' in fundamental analysis and or technical analysis pre 2008 you could make a decent case for them being useful..like you say, fubar now..

Each day I try to make sense of the markets and you can't, arguably the only securities left near to purity is fx cos tptb can't really control and corner a 4 trl a day market influenced by macro Economic and big domestic events..but then you get twats like Draghi opening his mouth and repeating his parlour trick three days running..

Each day it's the same, snafu..

Tue, 08/14/2012 - 13:51 | 2704371 Thomas
Thomas's picture

I don't short--too dnagerous for amateurs.

Tue, 08/14/2012 - 13:59 | 2704404 cifo
cifo's picture

How do you make money then?

Tue, 08/14/2012 - 14:01 | 2704406 Aziz
Aziz's picture

Long precious metals?

Tue, 08/14/2012 - 14:20 | 2704491 PiratePawpaw
PiratePawpaw's picture

Silver, copper, lead, and brass.

Tue, 08/14/2012 - 17:12 | 2705040 B-rock
B-rock's picture

Short, but don't do it for longer than 5 minutes!

Tue, 08/14/2012 - 13:52 | 2704374 francis_sawyer
francis_sawyer's picture

Pennies in front of a steamroller...

Tue, 08/14/2012 - 17:13 | 2705043 B-rock
B-rock's picture

$1000/day in front of the steamroller, don't you mean?

Tue, 08/14/2012 - 13:52 | 2704378 saturn
saturn's picture

This time.. is different.

Tue, 08/14/2012 - 13:54 | 2704382 francis_sawyer
francis_sawyer's picture

All your volatility are belong to us...

Tue, 08/14/2012 - 13:56 | 2704387 The Axe
The Axe's picture

All the instruments that effect VIX are flawed...dangerous and broken...draw no conclusions from there sick existence!!!  

Tue, 08/14/2012 - 13:56 | 2704388 mrktwtch2
mrktwtch2's picture

im long some tvix from an avrg price of 2.68..looking for a run to 4 hopefully by late next week..stop loss is at 2.14

Tue, 08/14/2012 - 13:58 | 2704396 Hype Alert
Hype Alert's picture

The market is more broken today that it was back then.  Fewer algo's co-located on the floor.  There were fewer victims of the FED policies back then as well.

Tue, 08/14/2012 - 14:06 | 2704424 NEOSERF
NEOSERF's picture

Yes but look at each successive spike afterwards, they get smaller and smaller so QE is WORKING...warm up the helicopters...

Tue, 08/14/2012 - 14:09 | 2704434 DR
DR's picture

Everyone is waiting for Europeans to come back from their vacations to resume the Euro crisis.

Tue, 08/14/2012 - 14:10 | 2704438 slaughterer
slaughterer's picture

Russell 2000 is the index to short, IMO, when the time comes.  

Tue, 08/14/2012 - 14:14 | 2704459 ATG
ATG's picture

Rolling over as we speak:


Tue, 08/14/2012 - 14:11 | 2704440 SheepDog-One
SheepDog-One's picture

Just means the markets have been taken over totaly at this point. I dont expect any 'market forces' to manifest in these conditions.


Tue, 08/14/2012 - 14:37 | 2704445 ATG
ATG's picture

Nice catch TD.

Any market crash may be blamed on Algobot HAL software sabotage with HFT volume drying up.



JEF et al KCG preferreds may be a good deal. Or not.

Did we mention we still got dem SPY puts?:


Tue, 08/14/2012 - 14:14 | 2704454 Dr. Engali
Dr. Engali's picture

I miss the days when the vix hit 80, the market was alot more interesting then. Now there's more excitement in one episode of Dora the Explorer than there is in a whole month's market action.

Tue, 08/14/2012 - 14:35 | 2704527 Tsar Pointless
Tsar Pointless's picture

Fantastic reference, Dr. Engali!

As somebody who was once forced to watch Dora cartoons while babysitting, I can fully appreciate your comment.

Markets. Funny - all I see are psy-ops weapons.

Tue, 08/14/2012 - 14:45 | 2704580 vrabobabo
vrabobabo's picture

not for shorters, they suffer. I am sure they would like to feel like Dora.

Tue, 08/14/2012 - 15:13 | 2704709 RunningMan
RunningMan's picture

I'm the MAAAAAP!

Tue, 08/14/2012 - 14:20 | 2704490 slaughterer
slaughterer's picture

S&P 500 looks like it is on the path to 1422/1429.  No shorts until then.  

Tue, 08/14/2012 - 14:39 | 2704539 Nicosxm
Nicosxm's picture

Agreed with you.... this could be a bear trap for now.

Tue, 08/14/2012 - 14:40 | 2704542 Nicosxm
Nicosxm's picture

Agreed with you.... this could be a bear trap for now.

Tue, 08/14/2012 - 15:45 | 2704831 Id fight Gandhi
Id fight Gandhi's picture

I read this as a beer trap.

Tue, 08/14/2012 - 14:44 | 2704570 put_peter
put_peter's picture

This time it is (of course) different.

Tue, 08/14/2012 - 14:51 | 2704607 Shizzmoney
Shizzmoney's picture

DOW 20K, S&P 1500

Does it really matter at this point?

Tue, 08/14/2012 - 14:55 | 2704627 vrabobabo
vrabobabo's picture

It does for shorters

Tue, 08/14/2012 - 14:57 | 2704635 El Hosel
El Hosel's picture

All time highs in price, all time low in volume... The restaurant is empty but business is good, pass the fairy dust.

Tue, 08/14/2012 - 15:32 | 2704777 GS-DickinDaMuppets
GS-DickinDaMuppets's picture

Pass the "Fairy Dust" you've gotta be joking ??  From where I am the damn "Fairy Dust" is three feet deep and rising,,,my biggest worry is drowning in it !  If Obozo and Bennie (and jets [FOMC] ) are not stopped soon, we are all going to need to get out the specs for NOAH's ARC, lest we may all perish in the "Fairy Dust".


...doing GOD's work...GS-DickinDaMuppets

Tue, 08/14/2012 - 15:38 | 2704806 El Hosel
El Hosel's picture

.... The "Markets" are no longer influenced by suppley and demand, the magic wand of propaganda (and market rigging) rules all. US markets have decoupled from reality, the Muppets are on a stick and the Banksters along with the leadership are on the take.

Tue, 08/14/2012 - 16:27 | 2704954 kornholio
kornholio's picture


Tue, 08/14/2012 - 16:31 | 2704962 supafuckinmingster
supafuckinmingster's picture

There is an underwater pineapple wearing a turbie towel on both legs

Tue, 08/14/2012 - 16:45 | 2704985 L927
L927's picture

we are all dreamers in the bottm of our hearts

Tue, 08/14/2012 - 17:14 | 2705046 Pubcoceo
Pubcoceo's picture

great post, looks like a lot of work, too bad there wasnt an algo to do that...


Tue, 08/14/2012 - 21:50 | 2705639 Ted Baker
Ted Baker's picture

Stocks are hugely overpriced - get out if you are in before 25th August.

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