Wednesday, November 19, 2008

VIX Likely Headed for Third Highest Close Ever

There is still an hour and a half left in the trading day, but it is beginning to look like the VIX will close over 70 for the first time this month and record its third highest close ever.

At 2:37 p.m. ET the VIX is at 73.62, well off of the record 80.06 close from October 27 and the second place 79.13 close of October 24 from the preceding Friday.

A lot can -- and usually does -- happen in the last half hour, but clearly the markets have a long way to go before fear and anxiety start to recede.

[Edit: the final number on the VIX is 74.26, though the index did touch 75.00 for a moment]


Mikkel said...

I guess we'll have to eat crow about the VIX not going above 80 again, as that seems to be a given. Strangely enough massive crisis news hasn't really gotten any play for a few weeks. Sure they are talking about a really bad economy moving forward but no longer is it "the economy will shut down in two weeks unless we do something."

Do you have any thoughts on that?

Mikkel said...

Hrm, I just compared the VIX:VXV and during the previous moves to 70 the ratio was above 1.35, while today it is 1.12. To me this suggests that people are starting to let go of their hope that there would be a quick recovery.

It will be really interesting to see what happens in the next month or two. By all historical measures we are so deeply oversold I'd expect a 25-30% rally by now, but then again that hasn't changed in the last month and a half. Maybe the increase in the VXV means that capitulation is almost upon us...or does it mean that a rebound is unlikely?

Anyway thanks for your work.

Anonymous said...

The major U.S. stock market indexes closed at their 2008 lows and at levels not seen since the bottom of the 2002/03 bear market. The markets sold off sharply in the last forty-five minutes and the November 20th opening and closing levels should be interesting levels to watch. The Vix closed very close to its intraday high of 75.0 today and a capitulation low may occur soon. The article listed below outlines the degree of financial devastation that this bear market has caused thus far.

NEW YORK (MarketWatch) -- In just one year, stocks in the S&P 500 index, the yardstick most used by professional investors to gauge the U.S. stock market, have lost nearly $1 trillion more than in the entire 2000-2002 bear market, Standard & Poor's said Wednesday. Since closing at a record high of 1,565 in October of 2007, the S&P 500 has now lost $6.69 trillion, said Howard Silverblatt, index analyst at S&P. That's already nearly $1 trillion more than the $5.76 trillion lost during the entire bear market of 2000 to 2002.

$SPX 806.58, -52.54, -6.1%) finished at 806.59, its lowest close since March 12, 2003, and just 40 points away from 776.76, which marked the bottom of the last bear market. (Correcting to show the S&P 500 has now lost $6.69 trillion since late last year, nearly $1 trillion more than the $5.76 trillion lost in the last bear market).

Anonymous said...

mikkel, the credit markets are indicating otherwise. if citi goes down i fear we'll see triple digit vix

Anonymous said...

I track VIX:VXV on a daily basis and have a different conclusion. Basically, it appears to me that the further looking VXV is seeing similarily high levels of volatility just as VIX is; hence the narrowing of the spread. That spells trouble to me. Also, keep in mind when charting that VIX generally makes rounded bottoms and spike tops. Looking like a rounded bottom in VIX:VXV which would imply another run higer for fear.

Mikkel said...


Yeah I don't know what to make of the VXV. On one hand it is alarming that there is more long term fear, but on the other hand everyone keeps cheering the one day rallies and declaring intermediate bottoms. When I saw a Bloomberg interview earlier this week (or was it last Friday) where the guy said that he was confident there had been a successful test but that a break would be 'armageddon,' I started thinking that maybe this next leg down will really finish extracting blood and lay down at least a 4-6 month rally back up to the 200 day MA.

That's why I thought to look at VXV in the first place to see if that sentiment was showing up in the numbers.

Of course the credit markets can go at any second, and based on the people in charge I'd worry more about the health of our country as a whole rather than losing money in the stock market.

Anonymous said...

We are in extreme times and it has shocked me the last few weeks at the dearth of discussion about the '02-'03 lows. Almost as if folks think they would never come into play. I think testing them is crucial but I'm dubious they can hold more than 1 attempt on them. Regardless, I'll play a bounce if we get there.
Check Bill's link to VIX futures on the homepage to see what the volatility 'pros' think of the future.

Bill Luby said...

Some interesting comments here.

On the triggers, don't rule out the growing realization that a $25 billion loan won't save the auto industry and increasing concerns about whether Citigroup can survive. Also, some foreign governments are one day closer to defaulting on debt and pirates appear to have the power to hold up the oil industry. Talk about feeling powerless...

Regarding the VIX:VXV ratio, focus on the VXV. The fact that it is setting new highs says more about long-term structural risk than concern about a particular event, as dowoper8tr hints at above.

In some fundamental respects things look a lot bleaker now than they did at VIX 89.53.

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