Wall Street’s favorite volatility metric, the Cboe Volatility index, known by its ticker symbol VIX and used by investors to gauge stock market fear, has decreased to the lowest level since before the covid-19 pandemic.
However, the VIX has refused to break the 20-mark level for more than 252 days, according to data compiled by Seeking Alpha.
The resistance to break this key level is the longest since the aftermath of the 2008 financial crisis. Analysts are predicting that the VIX is a must-watch metric as it could be indicative of a bubble burst in the stock market.
The S&P VIX Index, which is a reading of 30-day expected stock volatility, is under the 20-mark level at 18.91.
The VIX has declined 78 percent since the spike one year ago in mid-March 2020. In contrast, the SPDR S&P 500 Trust ETF has rallied 79 percent from exactly a year ago, which indicates a direct inverse relation between the two.
“For a market running on red-hot enthusiasm fuelled by call buying, investors may want to be attuned to when the VIX actually does break its current floor of 20 as a sign extreme speculation is fading and thus this fervent rally slowing,” said Oliver Renick, lead anchor at TD Ameritrade Network, in a note he tweeted.
The current VIX stretch is not as long as it was during the financial crisis but is already longer than during the dot-com bubble burst, Charles Schwab & Co. Chief Investment Strategist Liz Ann Sonders tweeted.
“VIX has been > 20 for 244 days … not yet as long as the GFC-era stretch, but longer than before/during the tech bust,” Sonders wrote.
However, such concerns are largely overblown, according to Marko Kolanovic, global head of macro quantitative and derivatives strategy at JPMorgan.
“Low volatility drives inflows, triggering a positive feedback loop of a rising market and declining volatility,” Kolanovic said in a note to clients.
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