A low VIX does not guarantee a stock market crash or slowdown per se – but when the waters are this calm, there’s often a storm ahead.
The VIX is now trading a such levels of calm not seen since April – just before the flash crash!
“What, me worry?” Source: StockCharts.com
I watched CNBC for a bit yesterday morning – if there was anything to worry about, it sure wasn’t discussed on the air, as a sense of ebullience emanated from the broadcast. Just like the good old days!
Big hat tip to Jeff Clark at Growth Stock Wire for writing about this, and prompting me to remember “oh yeah, gotta write something about the VIX.” Jeff writes:
Periods of low volatility in the stock market are always followed by periods of high volatility. Always.
It’s as certain as spring following winter.
Of course, when you’re suffering through temperatures that would make an Eskimo shiver, it’s hard to remember spring is on its way. And when stocks are a one-way bet, when the market moves higher day after day in unending bullishness, it’s hard to imagine it moving in the other direction.
But it always does. You can bet on it.
By the look of the Volatility Index (VIX), the market may be about to change temperature…
You can read his full take here (including what he’s looking for re: Bollinger Bands).
We’ve been short term cautious for awhile – because investor sentiment is through the roof, the VIX is in the tank, and I haven’t heard any mainstream predictions calling for a down year in the markets. Maybe we’re wrong and this market’s going to the moon! But I’d rather stay cautious and err on the side of history.
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