Chart of the Day: VIX versus SPX

I came into the office this morning, and my trading desk started our week by discussing the VIX. We put this chart together comparing the "fear indicator" with the S&P500.

As the chart below shows, the recent lows have been accompanied by very large spikes in fear, as indicated by VIX.

Last week, we had a pretty big sell off — but the VIX stayed relatively modest. That implies that a firm bottom (heh) — at least one that is tradable — has yet to be made.


VIX versus SPX, 1 yearV_ix_spx
Chart via Fusion IQ, Bloomberg


If the VIX were a stock, I would be a buyer . . .

UPDATE: June 24, 2008 8:48am

John Hussman noted in his commentary yesterday, “No Capitulation” that:

“despite the recent weakness, there is a strange “orderliness” to recent market losses – as if investors are convinced that there is some invisible safety net that will keep stocks in a trading range and prevent any sustained price erosion. That complacency may become costly. Still, stocks are somewhat oversold from a very short-term perspective, so again, we can’t rule out a fast, furious spike to clear that condition."

Well said . . .



UPDATE: June 23, 2008 11:48am

I posted this before seeing Felix Salmon’s Market Mover post on the following on: Adventures in Technical Analysis, Jim Cramer Edition.

I will respond to this later this week . . .



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  1. michael schumacher commented on Jun 23

    If it is able to be manipulated….it will.
    That it did not spike on friday tells you something…

    I’d buy here too…too bad I don’t need anymore “shorts”…..which is really what that is in disguise.


  2. scorpio commented on Jun 23

    why isnt it a stock? they’ve ETFd everything else

  3. michael schumacher commented on Jun 23

    totally convinced that the proliferation of ETF’s aids and abets the continued manipulation of the markets. Why else did they grow like weeds in 06-07? May be someone saw something coming??….he he..
    and to clarify my above statement of “a short in disguise” I mean at it’s present level although I expect another “event” to propel the market up hundreds of points for no reason whatsoever……just like we’ve had several times this year…I’ve lost count and track


  4. PHB commented on Jun 23

    Long call options = long stock position?

  5. Steve Barry commented on Jun 23

    My put/call chart also shows that conditions we saw at the other bottoms are not present…in fact, today’s put call at .78 is downright giddy. Remember also, Citi’s Panic Euphoria model recently spiked and has come down a bit.

    But market won’t crash unless PPT capitulates, which they might someday.

  6. Vermont Trader commented on Jun 23

    you can buy calls on the VIX but you have to forecast the volatility of the volatlilty. I’ve never had much luck with them.

    I covered down to 1x leverage on Fri. Think I am going to sit on my hands until Weds afternoon.

  7. Steve Barry commented on Jun 23

    Since you guys want to get technical, watch these bellwethers about to break major support…JPM, C and FDX.

  8. Annaen commented on Jun 23

    Seems that high correlation between members of the index is decidedly less an issue in this SPX downturn than in previous falls. Not good news!

  9. Andy Tabbo commented on Jun 23

    I wonder if the VIX is lower because of the perceived “Bernanke PUT”? I think what it means is that when the next bank fails and the FED decides to “sit it out.” The market will then realize that there is no more “put.” Only then will volatility skyrocket.

    – AT

  10. Steve Barry commented on Jun 23

    I mentioned PPT capitulation before. What would make the PPT give up and let market crash? Fun to speculate on it. Could only happen if Bush admin gives up on McCain getting elected and wants to tank things for Obama. When would that occur? The polls would say now it looks bleak for McCain. Surely whoever is running the PPT now realizes they are doing much more harm than good. They are probably a big behind the scenes factor promoting moral hazard which led to these massive credit and housing bubbles.

  11. Vermont Trader commented on Jun 23

    What I find fascinating right now from a tech perspective is the divergence between big caps like the DIA and SPY vs. Midcap/Small caps like the IWM and MDY…

    Too many shorts in the small caps?

  12. scorpio commented on Jun 23

    watching the autos, airlines and banks go to Zero. amazing. wonder how that Saudi so-called prince feels about C making the round-trip from 1992. now that would make me go all jihadi

  13. mikkel commented on Jun 23

    I personally think there will be a rally as the banks are sitting at 10 year lows (down 3% today) and the S&P is flat. They’ll get a good bounce and even if nothing else is working — and as long as oil doesn’t plummet — then that’s good for 3-5%. Plus that would get us to the point where 1260ish is broken when the CPI number has the seasonal adjustment work against it, which makes since.

    Course there could just be a crash…but that’s been a high probability all along.

  14. michael schumacher commented on Jun 23

    technicals with any financial stock(s) are useless IMO… can’t account for “help” and they are getting plenty of that already.

    The only thing you can game is that once breached they will be defended for no other reason than perception…..

    I’m with VT on this….I’ll wait until Weds…..


  15. Philippe commented on Jun 23

    If it may assist aggregated funds are net sellers of volatility since November 2007 with a large compression in February March 2008 They are now reducing their short position to the effect that in stock terms they are still short and building gradually a positive VIX slope since March 2008. It is to be assumed that normal variances may lie ahead.

    Net position as computed by Société Générale being the net between open long position and open short position (stock of volatility compression)
    The flows being computed with the same method but on a monthly basis.

    It is hard to believe that such a consensus can be built through unorganised random diverse strategies.!!!!!

  16. John Borchers commented on Jun 23

    The market is starting to believe that it’s back half 08 recovery is wrong. This is the time to buy.

    We will recover either back 08 or early 09. Early 09 is more likely.

    With the housing prices falling this quickly it’s a good thing. It means we have severe but short term damage rather than long term slow grind.

    I’m buying Ford heavily as I believe people will go back to buying US product and import products will become expensive and US and import quality are now the same (all companies outsource).

    I also believe Kerk offered Ford at $8.2 on purpose to make a ton of people buy Ford only left to be holding the bag when more shares were offered than could be bought by the offer. This makes all those people stuck selling that were looking for that greedy fast gain.

  17. Eric commented on Jun 23

    What’s sad is that in the pending entry from BR on the Felix Salmon piece, I fear he’s going to focus on clarifying his views and use of TA, and the issue of Cramer’s atrocious lack of accountability will not be addressed.

  18. michael schumacher commented on Jun 23

    >>We will recover either back 08 or early 09. Early 09 is more likely.>>

    Not a chance in hell that is going to happen…have you seen the latest home inventory #’s???

    Need that as a catalyst as that’s how we got there in the first place. I see no large real catalyst (because printing money via the BOJ doesn’t count) to allow that to happen.

    The reality of that happening is next to none. That does not mean that the I-banks won’t cook up a new way to account for money vaporization and make a “profit” from it, hell they already treat diminished liability as one now….


  19. OldBrokenRecord commented on Jun 23

    I don’t think the PPT is doing much these days as they already know that the wave thats coming is too big for them to chew. In other words, DaBoyz and co have already capitulated. Watch the market going down big time [probably] tomorrow and the rest of the week, then the final crash before july 4th.

  20. Barry Ritholtz commented on Jun 23


    One can spend an inordinate amount of time debunking anyone you choose – Cramer, Luskin, Kudlow, etc. — but that is not how I choose to spend my limited amount of hours and minutes on this earth doing, nor how I want to define myself (discussing other people versus discussing concepts and ideas).

    If you wish to start a blog doing just that, by all means, go ahead.

    Besides, can anyone match the Cramer takedown prowess of Don Harrold ?

  21. michael schumacher commented on Jun 23

    I don’t know if I should laugh or enter my email into Don’s “site”….

    The scary part is that he’s more aware than Cramer…..

    Funny stuff though…..


  22. catman commented on Jun 23

    An RBS analyst is talking crash, Lowry’s buying/selling pressure numbers are at record (negative)levels and the vix is having a leisurely walk in the park today. What this market needs is a perv in a raincoat.

  23. Mike in NOLA commented on Jun 23

    Don’t know what BR’s position on TA is. I, too, think most of what is sold as technical analysis is about as reliable as astrology.

    One didn’t need any charts of the indexes or individual stocks or options to know that the mortgage market was going to collapse and take a large part of the economy down with it, as it did. Or that the dollar was going to tank, as it did and will do again. These are just fundamental calls.

    OTOH, valid statistical correlations can exist and can be useful. Clearly, there has been a strong correlation between the low/high VIX and local market tops/bottoms over the past year. I had even attempted to post about it here last week, but got a message that the post set off the spam filter and would be held til reviewed by the BR. I assumed it was suppressed so Barry could steal my idea :)

    Don’t how BR forms his opinions, but there’s no substitute for being smart, well-informed and independent in thought, as he clearly is.

    As to the future validity of the VIX, it remains to be seen. I haven’t tried to see if it has had predictive power longer term. It may be that the correlation is due to some hedging system that has come into vogue. If it is latched on to by a bunch of people who take very large positions based on the highs and lows of the VIX, it’s validity will be distorted. I remember back in the 60’s reading about a system using trailing stop orders. Apparently the originator made a lot of money with it, but when a large number of people used it, big market breaks started occuring because so many stops were being triggered. A closer analogy might be a parimutuel betting system that gets publicized and used by too many people. The change in wagers will distort the odds so as to make whatever statistical validity it had no longer correct.

    As to the subject of Cramer, I think most of us share similar opinions on him and his bosses.

  24. cinefoz commented on Jun 23

    This indicator will not work this time. People are not as fearful or as erratic as in the past three major correlations. It would take $200 oil next week along with a second catastrophe for the VIX to spike as it has in the recent past. Or it will take a malaise of incredible magnitude to make people terrified of tomorrow.

  25. DL commented on Jun 23

    A drop below 1250 (on the S&P) would likely get the attention of investors.

    My take: the S&P will drop down to 1250 (and maybe 1200) before the end of September.

  26. SINGER commented on Jun 23

    The guy from the article dissing Technical Analysis is a TOOL… Respond BR, Respond with a Vengence…

  27. cinefoz commented on Jun 23

    I personally think we are close to a bottom, although I have no good idea when the turn up will be significant enough to rely on. I expect oil to drop in price significantly in a few months. This will put rockets on a lot of sectors in the market. Congress will close many of the oil loopholes that have allowed oil to rise so much.

    Oil is housing all over again, but without the weird tranches. If the speculators didn’t go crazy with the run up past $100 to $135, Congress would have been oblivious to the loopholes that allowed excessive money to enter the market and let then live forever.

    In fact, $135, more or less, is probably the top. This makes me wonder if the long only money will start to leave because a top is here. If so, how far will it have to drop before it is race for the door with respect to long only oil money? The shorts will cream the market if this happens.

    Even so, energy services and alternate energy sources will probably still be a good investment since, in a few years, oil will be in a position where demand really is greater than supply at nominal prices.

  28. JP commented on Jun 23

    I, too, think most of what is sold as technical analysis is about as reliable as astrology.

    Nonsense. Most astrologers are smart enough to avoid falsifiable statements.

    TA regularly produces false statements, but no one is collecting statistics to demonstrate that it’s accuracy is equivalent to a coin toss.

  29. DL commented on Jun 23

    “TA regularly produces false statements, but no one is collecting statistics to demonstrate that it’s accuracy is equivalent to a coin toss.”

    Two points:

    a ) A criticism of TA should take into account the issue of money management;

    b ) I agree that there’s a lot wrong with TA, but the question becomes, what then is the method for beating the market?

  30. Eric commented on Jun 23

    BR, I know you’ve occasionally sworn off any mention of Ben Stein, but my impression is that you’d previously dedicated quite a bit of time to debunking the guy. Maybe I’m wrong about that. (By the way, I had my suspicions about Stein. But it wasn’t until I came to TBP that I realized the guy is bat sh*t insane.)

  31. Risk Averse Alert commented on Jun 23


    Take a look at how the VIX has been behaving respective to its 200-day moving average over the past year or more. Also consider the report Jon Najarian gave Friday both at optionMONSTER and on CNBC regarding the “Volatility Spread” being at a level last seen at the March bottom.

    Myself, I believe the SPX is in similar position to early-November ’07. Sometime over the next several days we should see a bounce that succeeds in getting Maria Bartoromo all “hot for action.”

    However, this bounce will in all probability be followed by a capitulation slicing through the March lows and taking major indexes to levels last seen in 2004.

    From there I am looking for a melt-up, because I do not believe in the modern period there has been a time and a circumstance any more similar to that which existed from late 1928 to the crash of October 1929.

  32. Mike in NOLA commented on Jun 23

    “This indicator will not work this time. People are not as fearful or as erratic as in the past three major correlations.”

    The current moderate VIX reading may just mean that people are too complacent, a characteristic of declines until they get near a bottom. I myself don’t think we are close to a local bottom. Last week was just another step on the path. We shall see.

  33. Steve Barry commented on Jun 23

    I can justify any move in any time frame with some TA in hindsight…the trick to proper use of it for longer term predictive purposes is keeping the time frame long enough. For example, a head and shoulder on an intraday chart might break, but so what? The time frame is too short. I believe I am right, because I use software where I’m always drawing support or resistance on year or longer charts. I then forget about it and months later, the line is still on the chart and I don’t even remember drawing it. Invariably, the line was put in just the right palce to look for a critical event. Right now, look at FDX (5 year head and shoulder about to break) and C and JPM for major breakage. C closed within pennies of its March closing low today…see…the line worked again.

  34. michael schumacher commented on Jun 23

    TA is actually very useful…….along with other indicators-that is the key..with OTHER indicators. If you use it exclusively then you will be no more successful than if you rely on any one indicator for anything: market,purchases, life in general…..

    They all have merit in a system that you develop and are comfortable with.

    I still stand by my original comment that it has been largely useless for almost an entire year-possibly longer. Other things tell the exact same story just differently.

    The system knows what technicians are watching and can trap them very easily…not realizing or knowing that will cost you big time.


  35. mhm commented on Jun 23

    TA is a tool that reminds you to look for things/patters you normally forget. It does not predict, only gives you perspectives and increase awareness.

    That said, in the past 3 months I’ve been guided by gut feeling, more than anything. No, not psychic powers, just experience from trading the same few stocks for a few years.

  36. stewart sprague commented on Jun 23

    Or maybe the bottom has been reached???
    Well, maybe.

  37. Todd commented on Jun 23

    2 baffling things here to me has been the strength of the IWM vs the SPY and DJIA, and the weakness of the yen while the world markets have gone into a tailspin.

    Maybe the worm turned a bit today as the IWM was the weakest index. It’s been a bitch trying to hedge some select stock longs while being short the IWM through TWM.

    One thing that is clear to me is I can’t for the life of me concoct a bullish scenario here in the middle of summer where selling in May and going away is certainly a credo to be adhered to in a time of incredible uncertainty. Even if oil dumped $25/barrel in a few months that wouldn’t put enough of a dent in gasoline to revive the consumer and it could take down energy stocks and the SPY with it.

  38. Rock commented on Jun 23

    Just my $.02, with inflation, not much.
    I followed technical analysis for awhile but always knew something was wrong with it.
    It does not take into account the macroeconomic news.

    Given zero macroeconomic news and events, technical analysis is probably fine and better than darts. With the current economic climate, technical analysis is suspicious at best.

    If an asteroid is going to hit the world tomorrow and tech analysis says “buy” what are you going to do?

    Perhaps the reason why the DOW is still around 12,000 instead of lower, is people are looking at their charts instead of out their window. Kind of like NAR.

  39. wunsacon commented on Jun 23

    John Borchers, I’m surprised by your willingness to go long Ford at this point. Won’t Tata and Charco start selling $5k cars in the US at some point? How will Ford compete with that?

    More generally, weren’t you very, very bearish not too long ago? What made you change your mind?

  40. Stubborn Harami commented on Jun 24

    Cramer had people buy a bear flag in a well established down trend in a well established long term down trend.

    He is an idiot.

    People who watch his show are idiots, except for those who make cool videos exposing what an idiot he is.

    Cramer is just another of the bull-only wired brains out there. He gets every turn wrong.

    I’ve no idea what his “oscillator” is constructed from. One doesn’t need any such thing. A straight line and common sense can be used to do sufficient TA to keep one in trends (short or long) while they continue and off to the side when there is no trend. Repeat as necessary.

    Did I mention Cramer is an idiot? It wouldn’t surprise me if he recommended KO on June 10.

    /me wanders off thankful he doesn’t watch CNBC at all.

  41. Dr. Kenneth Noisewater commented on Jul 21

    ”I’ve no idea what his “oscillator” is constructed from. One doesn’t need any such thing. A straight line and common sense can be used to do sufficient TA to keep one in trends (short or long) while they continue and off to the side when there is no trend. Repeat as necessary.”

    Why did I just flash to the Oscillation Overthruster from _Buckaroo Banzai_?

    “Where are we going?”
    “PLANET 10!!”
    “REAL SOON!!!”

    Wherever you go, there you are..

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