It’s not every day that you see the Cboe Volatility Index — market’s ‘fear gauge’ — spike above 25, much less 65. When it does, it suggests fears are running exceptionally high based on real-time pricing of S & P 500 Index options. The ‘VIX’ touched 65 briefly before retreating in Monday trading. Often, spikes in the VIX are harrowing for investors because it means that the inversely correlated S & P 500 is trading off, in this case as much as 4.2% intraday. A spike in the VIX of this magnitude has not occurred since 2020, when the COVID-19 related decline in the S & P 500 was maturing. That was when the market was amid a high-volatility regime. We believe another high-volatility regime is upon us, with the prolonged low-volatility regime that preceded it coming to an abrupt halt. This is not necessarily a bearish long-term indication for the S & P 500, but it does tell us to expect more pullbacks and corrections as the uptrend becomes more gradual. In May, we introduced to clients and our X followers the possibility of a high-volatility regime, and you can see from the monthly VIX chart that, thankfully, they tend to be shorter than low-volatility regimes. Having enjoyed one of the latter since December 2022, or the end of the 2022 bear market cycle, it should not be too surprising to expect at least a temporary break in the cycle. The new monthly MACD crossover suggests that the VIX should establish a higher floor for 9 or more months. What does it mean for the market? What does this all mean for the S & P 500? Because elevated volatility tends to be associated with an emotionally fraught tape, we can assume that the S & P 500 will see more pullbacks, if not corrections (10%+), and that the steep uptrend will take a more gradual slope. The only indication we have of this is the current pullback, and a counter-trend indication on the monthly S & P chart from the DeMARK Indicators supporting four months of consolidation. If our long-term trend following measures were to deteriorate behind the S & P 500, we would be more inclined to reduce exposure. Otherwise, we generally recommend staying with core long positions, reducing more opportunistic/high-beta exposure. A rebound in the S & P 500 (i.e., a VIX pullback) can be used to hedge partial exposure from a top-down perspective. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer. Fairlead Strategies Disclaimer: This communication has been prepared by Fairlead Strategies LLC (“Fairlead Strategies”) for informational purposes only. This material is for illustration and discussion purposes and not intended to be, nor construed as, financial, legal, tax or investment advice. You should consult appropriate advisors concerning such matters. This material presents information through the date indicated, reflecting the author’s current expectations, and is subject to revision by the author, though the author is under no obligation to do so. This material may contain commentary on broad-based indices, market conditions, different types of securities, and cryptocurrencies, using the discipline of technical analysis, which evaluates the demand and supply based on market pricing. The views expressed herein are solely those of the author. This material should not be construed as a recommendation, or advice or an offer or solicitation with respect to the purchase or sale of any investment. The information is not intended to provide a basis on which you could make an investment decision on any particular security or its issuer. This document is intended for CNBC Pro subscribers only and is not for distribution to the general public. Certain information has been provided by and/or is based on third party sources and, although such information is believed to be reliable, no representation is made with respect to the accuracy, completeness, or timeliness of such information. This information may be subject to change without notice. Fairlead Strategies undertakes no obligation to maintain or update this material based on subsequent information and events or to provide you with any additional or supplemental information or any update to or correction of the information contained herein. Fairlead Strategies, its officers, employees, affiliates and partners shall not be liable to any person in any way whatsoever for any losses, costs, or claims for your reliance on this material. Nothing herein is, or shall be relied on as, a promise or representation as to future performance. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Opinions expressed in this material may differ or be contrary to opinions expressed, or actions taken, by Fairlead Strategies or its affiliates, or their respective officers, directors, or employees. In addition, any opinions and assumptions expressed herein are made as of the date of this communication and are subject to change and/or withdrawal without notice. Fairlead Strategies or its affiliates may have positions in financial instruments mentioned, may have acquired such positions at prices no longer available, and may have interests different from or adverse to your interests or inconsistent with the advice herein. Any investments made are made under the same terms as nonaffiliated investors and do not constitute a controlling interest. No liability is accepted by Fairlead Strategies, its officers, employees, affiliates, or partners for any losses that may arise from any use of the information contained herein. Any financial instruments mentioned herein are speculative in nature and may involve risk to principal and interest. Any prices or levels shown are either historical or purely indicative. This material does not take into account the particular investment objectives or financial circumstances, objectives or needs of any specific investor, and are not intended as recommendations of particular securities, investment products, or other financial products or strategies to particular clients. Securities, investment products, other financial products or strategies discussed herein may not be suitable for all investors. The recipient of this information must make its own independent decisions regarding any securities, investment products or other financial products mentioned herein. The material should not be provided to any person in a jurisdiction where its provision or use would be contrary to local laws, rules, or regulations. This material is not to be reproduced or redistributed absent the written consent of Fairlead Strategies.
This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Discussion about this post