QOTD: Nick Colas on the Vix

The below, via my friend Nicholas Colas, chief market strategist at Convergex, a global brokerage company based in New York:

The general sentiment on the Convergex trading desks continues to be bearish, so today we’ll review seasonal patterns for the CBOE VIX Index going back to its starting point in 1990 to see what that math says about current market risk.  Over the last 27 years, the VIX has tended to bottom in three specific months: January (15% of the time), July (22%), and December (30%).  When the VIX does bottom in January, its average low reading is 12.2; today’s close was 11.9. That doesn’t guarantee that we’re at the lows on the VIX for the year, but given January’s propensity to represent an annual low it does merit your attention.  And since changes in the CBOE VIX index are strongly (and negatively) correlated to equity market returns, this is a warning sign about the near term direction of US stocks.

A reading of 11.8 is more than one standard deviation away from the VIX’s long term average of 20.  Additionally, the VIX rarely goes below 10.  Statistically, 11.8 is an unusually low reading for the VIX. 

Josh here – with a lot of the “Trump Trade” nonsense starting to unwind (the banks are down 2%ish over the past week and bonds caught a bid), don’t be surprised about having a two-way market going forward. The honeymoon never lasts forever post-election.

Source:

Make Stocks Volatile Again
Convergex – January 23rd, 2017

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