The Big Picture

« Did Bank of America Write the Housing Bailout Bill? | Main | Harvard's State of the Nation's Housing 2008 »

Chart of the Day: VIX versus SPX

Monday, June 23, 2008 | 11:00 AM

in Contrary Indicators | Markets | Psychology/Sentiment | Technical Analysis

I came into the office this morning, and my trading desk started our week by discussing the VIX. We put this chart together comparing the "fear indicator" with the S&P500.

As the chart below shows, the recent lows have been accompanied by very large spikes in fear, as indicated by VIX.

Last week, we had a pretty big sell off -- but the VIX stayed relatively modest. That implies that a firm bottom (heh) -- at least one that is tradable -- has yet to be made.

VIX versus SPX, 1 year
Chart via Fusion IQ, Bloomberg

If the VIX were a stock, I would be a buyer . . .

UPDATE: June 24, 2008 8:48am

John Hussman noted in his commentary yesterday, “No Capitulation” that:

“despite the recent weakness, there is a strange “orderliness” to recent market losses – as if investors are convinced that there is some invisible safety net that will keep stocks in a trading range and prevent any sustained price erosion. That complacency may become costly. Still, stocks are somewhat oversold from a very short-term perspective, so again, we can't rule out a fast, furious spike to clear that condition."

Well said . . .

UPDATE: June 23, 2008 11:48am

I posted this before seeing Felix Salmon's Market Mover post on the following on: Adventures in Technical Analysis, Jim Cramer Edition.

I will respond to this later this week . . .

~~~