It is difficult not to notice that volatility is getting crushed today. The Volatility Index (VIX) is nearing multi-year lows, which is in line with the S&P 500 as it tries to breakout to new all-time highs (and the holiday weekend). Â Yet the question remains: Is this a sign of a complacent market?
Well, as the bulls and bears prepare for battle next week, and the noise index shoots higher, I thought I’d share a few random thoughts on both sides, as well as a couple of charts. Remember that time frames matter.  And feel free to add to the conversation.
Complacent:
- An 11-handle on the VIX is what it is. No fear.
- New multi-year lows…  the closer it gets to a 10-handle, the more worrisome (especially over the near-term, as it would be its first foray towards that level in years).
- This move lower in volatility is coming around a neutral to negative market seasonality (“Sell in May”).
- The VIX is about to record bar 8 of a weekly buy setup (placing a high likelihood of an upside reaction in early to mid June).
Not Complacent:
- “Sell In May” shifting to “Sell In June”?
- Multi-year lows may be a near-term caution sign, but from a macro level, low volatility is a sign of more gains to come (see 2005-2006)
- Sentiment is still bearish, indicating that equities have more upside.
- “The market can remain irrational longer than you can remain solvent.” Â A quote attributed to John Maynard Keynes.
Note that Andrew Kassen did an excellent volatility analysis earlier this week.
VIX – Volatility Index Daily Chart
VIX Weekly Chart (nearing buy setup)
VIX – Volatility Index Weekly Chart (vs S&P 500)
What do you think?
No position in any of the mentioned securities at the time of publication. Â Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
