What Momentum of A Unique Relationship Says About The Volatility Index

One of the great things about being a technician is the ability to constantly explore new charts and looking at markets from all angles. The Volatility Index (VIX) has gotten a lot of attention lately as it gets to historically low levels. Charlie Bilello, CMT pointed out that the VIX earlier this month was down 48% in the prior 5 weeks, marking the 2nd largest five-week decline in history. Today I want to look at, what I believe to be, a unique ratio chart – the S&P 500 and the VVIX (Volatility of the VIX).

What this ratio does is compare the relative performance of the S&P 500 equity market to the Volatility of the Volatility Index. What I’m most interested in is how momentum of this ratio acts and the timing of moves for the VIX itself. . And that’s exactly what I’m looking for in this ratio chart below. When the two-week Relative Strength Index (RSI) for the S&P 500-VVIX ratio as show in the bottom panel moves above 70 (becoming ‘overbought’) and then declines as the VIX itself is declining, has marked some interesting turning points for the Volatility Index and has often marked the eventual low (or close to it) for the VIX.

This is a setup that’s taking place right now as the VIX drops under 12. It’s possible we see the VIX go higher from here, but over what time frame we do not know. As of the time of this writing the VIX is up pre-market, we’ll see if that continues as we finish out the year.


Merry Christmas.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.