By Chris Becker
A closely watched measure of volatility, the CBOE Volatility Index, or VIX, which is used by traders and institutions for buying puts and calls for hedging purposes, has well and truly bottomed recently.
Here’s the weekly five year chart:
And here’s the Australian version, the S&P/ASX200 VIX (Code: XVI)
I don’t need to explain the significance of the upticks for regular market watchers, but each time to VIX or XVI has fallen to a new low, a correction has transpired shortly thereafter. Does this lack of volatility breed complacency?
Although economic growth remains sluggish and slowing across the world and uncertainty remains high, VIX (volatility index) has reached a new multi-year low yesterday. In fact, it hits a new post-crisis low. So all is well, according to VIX. Or we are simply too complacent?
The question not being asked is, whose buying this rally? Its certainly a time to be asking questions, not doubling down.
Update: here’s the SP500 tracked against the VIX:
Chris Becker is an investment strategist at Macro Investor, Australia’s leading independent investment newsletter covering stocks, trades, property and fixed interest. Each week Macro Investor publishes tables on the top ten most undervalued and overvalued stocks on the ASX. A free 21-day trial is available at the site.
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