Keystone's SPX:VIX Ratio Indicator

The SPX:VIX ratio is one of Keystone's Turn signals. It is very useful in identifying acceleration moves lower once the 68 level is broken to the downside. This signal warned of the big Fall 2008 crash that led to QE1, the spring 2010 crash that led to QE2, the August 2011 waterfall crash that led to Operatin Twist and LTRO 1 and 2, and the breakdown spring 2012 that recovered in the summer when Draghi proclaimed that he would support the euro by all means necessary, with OMT, and Bernanke threw in QE3 Infinity for good measure. Up euro means up equities. Note the tease of 68 in November 2012.  Remember when that occurred? Losing 68 is a major bearish crash signal and it looked like the markets goose was cooked in the presidential election day selloff downdraft, but in quick order the ratio popped back above the 68 level, Bernanke announced QE4 Infinity and Beyond in mid-December to save the day once again. Markets solely supported on money pumping with QE5, 6 and 7 no doubt waiting in the wings.

The 35 level is important as well. When the ratio falls under 35 the markets are in a continued selling phase but once the ratio reverses and moves back above 35, the bulls rule since this identifies big-time market rally time. The QE1 rally was confirmed in June 2009, the ratio recovered in 2010 knowing that Bernanke would deliver more QE at Jackson Hole in August 2010, which he did, QE2.  The Operation Twist and LTRO 1 and 2 money pump rally was confirmed when the ratio moved above 35 in the Fall 2011.

The SPX:VIX is at levels not seen since the 2007 market top. Holy smokes! If you remember high school math class, fractions, for a ratio you have the numerator (top number) and denominator (bottom number).When the top number increases (SPX), the ratio increases. When the bottom number (VIX) drops, the ratio increases. A VIX moving higher will bring the ratio lower.  Thus, the obscene drop in the VIX the last few days catapults the SPX:VIX ratio to the current heights. The blue lines show strong negative divergence in place, along with overbot stochastics, that wants to see a spank down. When the ratio moves down that means the SPX moves lower (markets selling off) and the VIX moves higher. Note the peaks in the ratio correspond to market tops, like now. Reference the Turn Signal page for more information. 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.