Research Excerpts

Chart Of The Week: Historically Low Volatility Is Still A Meaningful Red Flag

Posted on: Tuesday, January 8th, 2013

The following is one of the 13 charts and corresponding analysis (green font below) from our Monday January 7th Keys To This Week report (access requires subscription, click here to view a sample report).

Keys To This Week, one of 8 different reports that we produce for subscribers throughout the month, is a comprehensive weekly outline of key market factors and corresponding charts and data pertaining to the US stock market and market sectors, US interest rates, and the US Dollar, that are most likely to influence upcoming US financial market direction.

Excerpt: from our January 7th Keys To This Week
Category: The US 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.


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