Since we haven’t had VIX in the mid-20’s for over 2 years it is probably worth getting a little perspective on recent volatility market price action.
The last time VIX was around these levels was early June 2012 when VIX got as high as 26.66. VIX reached this level after the S&P 500 had dropped about 8.5% in a month. On May 1, 2012 the S&P 500 closed at 1405.82 and by June 1st the S&P 500 closed as low as 1278.04. The recent (and all time) closing high for the S&P 500 is 2011.36 from back on September 18th. We are currently about 7.25% off the all-time high. Only about 2.75% before the financial press starts frequently using the word correction. To save you getting out the HP 12C a 10% drop from the high would put the S&P 500 around 1810.
As for the CBOE Volatility Index, looking back to May 1, 2012 VIX closed at 16.60. Since 2008 was a more recent memory and we had yet to experience the great performance of 2013 VIX was higher and closer to a long term average. On September 18 of this year VIX closed at 12.03 and we finished today at 24.64.
For the VXX watchers (or critics) from September 18 through today VXX is up just over 45%. Not so bad for something that no one ever claims to have actually purchased. Back in 2012, from May 1, 2012 to June 1, 2012 VXX rose about 41% – so VXX has done a little better in this mini-correction.
Finally, let’s get the real story and take a look at the VIX term structure change from Friday to today. We all know the real VIXophiles don’t do anything without consulting the curve (nor should they).
The moves in October and November, which mostly kept pace with cash VIX today, can be read one of two ways. Either that’s some real panic and more is to come or that’s some real panic and you believe panic is an indication that a market bottom is close. The one thing to agree on – VIX moving from 12 to the mid-20’s, VXX up 45%, and one of the most defined VIX term structure backwardations in some time all indicate that the dip buyers that have done so well for so long are on the sidelines for the moment.