Historically Low Volatility Is Still A Meaningful Red Flag

Includes: VIXX, VXX, VXZ, ZIV
by: John Kosar

Excerpt: from our January 7th Keys To This Week
Category: The U.S. Stock Market
Topic: Options Volatility

Chart 2 below, which plots the CBOE Volatility Index since 2012 in the lower panel, shows that previous declines in the VIX to 13.64 - which was the low reading on Friday - have coincided with several important near-term peaks in the S&P 500 (upper panel) during the past year.

Chart 2 of 9

The VIX has virtually been ignored by the financial media and by the market itself since August, when the CBOE's "fear gauge" declined below 20.00 and with few exceptions has stayed there ever since. Investors collectively become the most afraid when they are least expecting a scare, and the VIX is indicating that the market is as ready for a good scare as it has been in a long time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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