By Anora Mahmudova
Implied volatility on Wall Street, as measured by the CBOE Volatility index VIX, +34.13% soared 33% on Friday to 16.56, the steepest increase since June 24, the day Britain voted to leave the European Union, in a referendum dubbed Brexit.
Investors tend to be more fretful of VIX readings of 20 or above, but Friday’s jump was significant for the so-called fear gauge for Wall Street, considering that it has remained around 12 for a sustained period.
Back in late June, the VIX jumped nearly 50%, as investors feared an ugly fallout in the U.K. and the rest of the Europe following Brexit.
“VIX has been around 12 and bullish sentiment was pretty high for the past two months—a sign of complacent markets. When the VIX is that low, markets usually just tread water, as the S&P 500 did, moving sideways,” said John Kosar, chief market strategist at Asbury Research.
In a note to clients earlier this week, Kosar warned the S&P 500 SPX, -2.45% is primed for a 4%-7% pullback as long as the VIX stays above 13.5.
“We think this will end up being a healthy retracement for the stock market,” Kosar said in an interview with MarketWatch.
“Unless we see a sustained move below the 200-day moving average on the S&P 500, slightly elevated VIX isn’t worrisome,” Kosar said.
Read the rest of this article on MarketWatch.com.
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