VIX Breaks Below 20

The VIX has broken below 20 just before 10:30 in morning trading on what appears to be convincing volume. Though China and yesterday's FOMC statement have been taking their toll on treasuries, the volatility correction seems to be most apparent in the correction going on between the Russell 2000 and the S&P 500.

Note how the Russell's differential strength versus the S&P skyrocketed, forecasting the VIX drop. The market seems to accept now that the FOMC statement did not change its stance on the relative securities of large and small caps over the last month, and is thus correcting accordingly. As of 11 o'clock, the Russell ETF is trading at over twice the return of the S&P 500 ETF, with IWM up over 3% and SPY up near 1.25%.

click to enlarge

Comments

[Richie:]

Boy, that didn't last long --- huh???

2007 Aug 09 02:18 PM

[Michael Bom...:]

What's most interesting to me is that even though the VIX and the overall market both shot right back in the opposite direction today, the Russell beat the S&P substantially again today. Either this is some arbitrage correction specific to these two and the FOMC's illumination or perhaps theoretical implied volatility in the derivatives market is out of sync with reality as the market goes through a phase change in liquidity and expectation.

2007 Aug 09 04:48 PM