Time to Bet Against VIX After Recent Rising Streak, History Says

image

(Bloomberg) — Seven straight jumps in the so-called “fear gauge” for the S&P 500 is a signal that it may be time to wager against volatility, if history is any guide.

Only 10 times in the past two decades has the Cboe Volatility Index — better known as the VIX — risen for that many trading sessions in a row. Investors who shorted the gauge after the previous nine streaks of that length would have earned a return of nearly 19% after 20 days, according to data compiled by Bloomberg.

The most-recent round of stair-stepped volatility increases ran from Jan. 18 to Jan. 26, when the Federal Reserve had its latest policy meeting. The VIX fell the following day, signaling more clarity and, seemingly, less fear about interest rates and yields.

The Fed’s hawkish pivot to fight inflation has triggered a selloff in stocks on worries about receding stimulus and the risk of slower economic growth. Some Wall Street strategists now argue it’s time to buy the dip, which usually means volatility should ebb, too.

“The market may continue to slide, but we think so will volatility as volatility exhaustion is setting in,” Michael Purves, chief executive officer of Tallbacken Capital Advisors LLC, wrote in a note the day before the Fed meeting.

Another technical indicator comes up with a similar result: The VIX put/call ratio reached its highest level since October on Wednesday, according to Chris Murphy, derivatives strategist at Susquehanna International Group.

That gauge’s level could end up being a “peak,” he said, noting that similar readings were strongly bullish signals for the S&P 500. Among the 16 peaks that were higher than this week’s, the S&P 500 was higher a month later 13 times, with an average 4.2% gain, Murphy said.

©2022 Bloomberg L.P.

Trending Ideas

Featured Stocks On The Move

Daily Rundown

Top 3 Stocks in Leading Sectors
  • 3 Electric Power Stocks To Buy Now

    Featured Content Hawaiian Electric Industries, Inc. (HE) Hawaiian Electric Industries, Inc. is a holding company that provides electric utility services and financial services in Hawaii. Through its subsidiaries, it supplies... Read More

  • 3 Bank Stocks To Buy Now

    Featured Content Comerica Incorporated (CMA) Comerica Incorporated is a financial services company headquartered in Dallas, Texas, offering a range of banking products and services, including commercial and retail banking, wealth... Read More

  • 3 Machinery Stocks To Buy Now

    Featured Content Alta Equipment Group Inc. (ALTG) Alta Equipment Group Inc. is an integrated equipment dealership platform in the United States, operating through three segments: Material Handling, Construction Equipment, and... Read More

  • 3 Silver Stocks To Buy Now

    Featured Content Gatos Silver, Inc. (GATO) Gatos Silver, Inc. is a precious metals mining company primarily focused on silver and zinc production. Its flagship Cerro Los Gatos mine in Mexico... Read More

  • 3 Metal Production Stocks To Buy Now

    Featured Content Century Aluminum Company (CENX) Century Aluminum Company is a primary aluminum producer, with operations that include the production of high-purity, low-carbon aluminum used in automotive, aerospace, and industrial... Read More

  • 3 Medical Drug Stocks To Buy Now

    Featured Content Teva Pharmaceutical Industries Limited (TEVA) Teva Pharmaceutical Industries Limited is a global pharmaceutical company specializing in generic and specialty medicines. The company provides a wide range of treatments... Read More

  • 3 Paper Product Stocks To Buy Now

    Featured Content AptarGroup Inc. (ATR) AptarGroup Inc. is a global leader in providing innovative dispensing and packaging solutions, serving diverse industries like beauty, personal care, and pharmaceuticals. They focus on... Read More

  • 3 Restaurant Stocks To Buy Now

    Featured Content Brinker International, Inc. (EAT) Brinker International, Inc. operates well-known restaurant brands such as Chili’s Grill & Bar and Maggiano’s Little Italy. The company is a leader in the... Read More

  • 3 Investment Brokerage Stocks To Buy Now

    Featured Content Robinhood Markets, Inc. (HOOD) Robinhood Markets, Inc. is a financial services company known for its commission-free trading platform, which allows users to trade stocks, options, cryptocurrencies, and ETFs.... Read More

  • 3 Shipping Stocks To Buy Now

    Featured Content ZIM Integrated Shipping Services Ltd. (ZIM) ZIM Integrated Shipping Services Ltd. is a global container shipping company that provides cargo transportation services worldwide. The company operates a modern... Read More

  • 3 Mining Stocks To Buy Now

    Featured Content Perpetua Resources Corp. (PPTA) Perpetua Resources Corp. is a mining company focused on the exploration and redevelopment of the Stibnite Gold Project in Idaho, which is one of... Read More

  • 3 Airline Stocks To Buy Now

    Featured Content General Electric Company (GE) General Electric Company is a global industrial conglomerate with operations spanning sectors such as aviation, healthcare, power, and renewable energy. GE is known for... Read More