VIX Volatility and SPX S&P 500 Daily Charts; Correlation Breakdown

The VIX and SPX inverse correlation is breaking down just like in January before the stock market top. The VIX moves opposite the stock market (SPX) 80 to 90% of the time. It gets your attention when the VIX and SPX are moving in the same direction.

The VIX printed its epic all-time low on 11/24/17 at 8.56 (green circle) the lowest VIX print in history which is uber bullish for the stock market. Note how volatilty traidled lower in 2017 and the stock market trended higher as would be expected.

In January, however, the VIX began runninghigher signaling trouble for the stock market moving above its 200-day MA but instead stocks were in a parabolic move higher. Traders were tripping over each other buying stocks with both fists. The euphoria was off the charts as pundits told Aunt Nellie to invest all her retirement money in the stock market. Reality hit on 1/26/18. The VIX jumped higher and the VIX/SPX inverse correlation returned with a vengeance with stocks crashing.

The VIX spiking to 50 was a great buy signal since there was blood flowing in the streets. Doom and gloom was rampant. Traders were jumping out of windows no longer able to watch computer screens showing massive losses; fortunately they jumped out of ground floor windows.

The buy signal due to the wicked high VIX at 50 worked out great since it identified the early February bottom in the stock market and you can see how the VIX once again trended lower, dropping below the 200-day MA in early May, so you knew the bulls were in control of the stock market and sure enough, equities trended higher from February into early August as the VIX trended lower during that period.

The purple circle shows the recent low in the VIX at 10.17. The VIX/SPX correlation was in play with the VIX popping above the 200-day MA signaling trouble for stocks but it was very short; stocks dropped but if you blinked you missed it. Then, notice the recent behavior. The VIXis trending higher ever since the 10.17 lower as the stock market is continuing to trend higher the same behavior that occurred in January ahead of the stock market top. It would be wise to stay alert and cautious. Real trouble would not begin until the VIX moves above the 200-day MA at 14.64 so watch that closely.

In late January, note how the SPX price was extended above the moving average ribbon; the S&P 500 was above the 20-day MA above the 50-day MA above the 100 above the 150 above the 200. You knew that price needed a mean reversion lower which occurred. Currently, same dealio. Price is extended above the 20 above the 50 above the 100 above the 150 above the 200 so a mean reversion is in play once again.

Note the flattening of the 150-day MA on the SPX chart. That is one of Keystone's cyclical market signals. That flattening 150-day MA is trouble for the stock market. Watch it closely. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.