Some interesting things have been happening in the VIX this week. Yesterday, I recounted how the VIX jumped 8% on Monday while the SPX was almost flat. By the end of the day yesterday, the SPX was up 1% and the VIX, which has generally been strongly negatively correlated with the SPX, was up .6%.
In the upside down world of the VIX, any time the SPX and the VIX are positively correlated, we have a divergence. In this case I think it may be a significant divergence.
First, some quick history: from 1990 through 12/18/03, the SPX gained 1% or more on 480 occasions. Of those 480 occasions, about 12% of the time the VIX was up on that day instead of down. If you have just recently started paying attention to the VIX, as I have, that 12% number may sound high. In fact, since 12/18/03, we have had 57 additional instances of a 1% SPX jump and not one of those rises in the SPX was accompanied by rising VIX – until yesterday.
Now one data point does not necessarily mark a turning point, but it certainly is the bookend to 41 months of a very persistent pattern. In fact, if you calculate the likelihood of a .120 batter going 0 for 56, you will see that it happens less than 0.08% of the time.