Lots of people are talking about how low the VIX is and how that is bearish. While that may well prove to be the case in the short run, on a longer time-frame not only can the VIX go lower, but it can stay low for a long time – years in fact.
Are we about to enter a new, low-VIX era? Maybe. On the weekly chart, the VIX is poised to make a “death cross” where the 50-week moving average crosses below the 200-week average (click chart to enlarge):
The top panel shows the VIX in black bars, with the 50-week average in green, and the 200-week average in blue. Notice how, on the right side of the chart, the green line is about to cross the blue line. The last time that happened was in September 2003.
At that time, you could have gotten long the market and gone to sleep for four years as you can see in the lower panel of the chart which shows the weekly S&P 500. As long as you had your alarm clock set for August 2007 and the VIX golden cross, you would have done just fine.
The moral of the story is that if the VIX does indeed make the death cross, it might be a good time for bears to go into hibernation. Also, a low-volatility market should prove less punishing for fledgling day-traders.
Note: The VIX has behaved differently in the past. For example, the VIX rose along with the bull market in the 1990′s.
Update: If you hear people (such as Joe Lavorgna) talking about the VIX Death Cross in the coming days, remember that you heard it here first. In fact, here’s a screen shot of Google listing my site on top for a “vix death cross” search only 22 minutes after I posted the chart:
Hands off my memes Lavorgna!
Matt, Death cross doesn’t operate in the same way as Golden Cross. There is not much correlation of downside to death cross like golden cross is to upside.
Ticker Street,
Can you elaborate more on the differences?
Thanks
That is very interesting as it makes a forecast about price direction without observing it directly.
Agree with Matt about a cross, if it happens, more uppage. VIX’s 50 could bounce off the 200. I see that often on the intraday charts.
This suspense has me monitoring the VIX full-time now.
phil says:
March 16, 2010 at 9:09 am
STRING….TLT @ 90.75…..now above tough 4 th wave of lesser degree resistance around 90.50….TARGET now 91.20…..BACKING UP TRUCK now …of course you know what kind of truck it is dont you????
Fed-Speak this afternoon. Should liven things up a bit.
Also, BKX daily isn’t looking too good.
http://i39.tinypic.com/2d98u15.jpg
dax broke 5950 after being stuck for the whole day. There goes the s-h-s formation the bears were betting on.
Unless the market reverses soon, the “Ides of March” will be another Miff’ed Market Myth.
That earlier period of the VIX chart may also depict the affordability (mispricing) of the “The Great Moderation.” A phenomenally expensive phenomenon.
SKF is about .08c from being a teenager again. Moving up some now. Do you know where your inverse is?
Matt,
Lavorgna, a proponent of the “new mix” (it seems) as opposed to the “new normal” would probably find the vix 50/200 cross-down interesting.
bias up… The shorts playing the retracement after 1150 should have gotten stopped out.
Here’s the VIX daily showing where the weekly turned down on Matt’s weekly and where we’re it’s at in its daily cycle now:
http://i40.tinypic.com/k4ckno.jpg
SPY resting on 5min 36MA support.
Yerk says:
March 16, 2010 at 11:30 am
bias up… The shorts playing the retracement after 1150 should have gotten stopped out.
Yerk,
I considered it there but thought I would wait for more symmetry on the i/h/s pattern. I’d have to be too nimble to catch that right shoulder down that may kick off Tuesday next week (give or take some margin lol).
Ha, SKF hasn’t moved in awhile… marking time until Fed-Speak.
FOMC didn’t have much different of a message. Rates staying the same, slight improvements in the economy which is still under some duress with high unemployment. They’ve been buying up distressed mortages, etc.
Meaning… the environment ain’t all that good.
EVERYONE is MIA today. Is today a holiday? I’m missing something here.
GEORGE…..STRING>>>TLT above 90 now….mere pennies from my target
above 91
HEDGING my bonds with a touch o’ TBT here
TLT 90.96 @ 61.8 from 2/26 high huh?
Phil,
Check my math there please. lol
SPY at intraday tops but may not mean much.
SPY 5min MACD negative divergence but may not mean much.
Isn’t this triple-witch week? Max pain plus 2. This is the first pain, the next might be toward the downside.
MITCH….i just eyeball it ….looks good..i am concerned that TLT is in a triangle since jan 11..and that this is wave e …that is the last wave before a down blast that takes out the june lows … we discussed this many months ago if you remember……..how have you been??
SKF is a teenager – once again. It could stay that way for years, or be an old man in a couple of months.
phil,
>>>down blast that takes out the june lows
That would be phenomenal – I don’t expect that anytime soon. I do expect a 50% retrace of today’s close however. I also am looking for TLT to run counter to the right shoulder of the ihs pattern on SPX. This may be why TLT made its move today.
George, your 2:41, FAZ down to low 14′s, may not be a teenager for long !
i’m still long PAAS and short CAL…down on the package but less so after today…
is the market in giddy-up mode or do we top out soon ?
After,
Does FAZ show the situation, or what? It has been a teenager for several weeks not.
I’m just looking at the move to the downside on the inverse and know at some point they are going to reverse. I don’t know when but I’ll sure back up the truck when they do.
I have a feeling these inverse (especially the new ones like FAZ), were overpriced when they were born. Now they’re coming into line with the underling. FAZ was created Nov 2008 and immediately went up to $2,000! That’s fishy.
I can’t draw it, but I remember from somewhere how the market makes “U” shaped moves. The inverse are doing that right now to the downside, then will curve back up.
FAZ circles imitating “U”s:
http://i39.tinypic.com/b7nmfs.jpg
Gang
Hope y’all had fun without me today, I was in NFIP flood cert class. Be back tomorrow. I wanted to explain my absence, I didn’t want y’all to think the skunk got me back. I do still have some aroma around here though. Mananna!
String
Stringm,
Good to have you back.
I’ve not heard of NFIP flood certification. You must live in a soupy area.
Those skunks can sure put a smell out. I had one to spray my shoes one time. I was on my way to school. The teacher made me leave. Mom threw the shoes away.
George
I am an independent insurance adjuster. The company I work with has a new client in Alabama. We would handle both wind and flood claims in the event of a storm. So I need to be flood certified. I do all this traning and CE work to keep my license current, but it seems I have single handly slowed the storms. I am ready for mama nature to tear something up this year. That’s the way us adjusters are. In one way it feels bad for folks to have to suffer for us to make money, but on the other we do help get them paid when it happens.
String
Oh, I see, an adjuster. Didn’t know that.
That’s like life insurance: The insurer is betting you will die, you’re betting you won’t, yet the insurer is being paid for the bet. Kinda has a stock market/broker twine to it, huh?
Alabama is due for some bad weather according to the Almanac.
From my alma mater, I can tell you, it is all about the U!
Great post on that chart George, I am waiting patiently like you….
U got it, Randall.