Keystone's SPX:VIX Ratio Indicator

There is not much said about the SPX:VIX ratio these days since the continued bullishness keeps price far above the 68 level that serves as a crash signal. Whenever the 68 level hits, the Dow drops from 100 to 300 points that day or the next day and the path forward is all down hill. The last test was at the end of last year when the fiscal cliff resolution occurred and saved the day. The ratio has not been under 80 ever since.  The brown dots show how the highs are running out of gas. As markets print new all-time highs day after day, the SPX:VIX ratio is dropping.

Obviously the strong SPX (broad markets) in the numerator sends the ratio higher and lower equities will send the ratio lower. In the denominator, a lower VIX will send the ratio higher while a higher VIX will send the ratio lower. Since equities are moving upwards with reckless abandon, the thinking is that the ratio should be printing higher highs. The brown dots and trend line show the opposite. This is due to the VIX moving flat and not moving lower, perhaps an indication of volatility placing a bottom. The last time the SPX:VIX ratio was under 68 was the May 2012 sell off one year ago so a reversion lower is desperately needed. Just as night follows day and day follows night, the ratio needs to move lower and correct. The projection is a lower SPX:VIX moving forward which means a combination of lower SPX and higher volatility. The 68 level will show its face again, it is simply a matter of when. Do not be lulled into the lofty 130 print as being far above and no worry. The ratio is capable of moving very quickly and it would not be at all surprising to see the ratio at 80 or lower again in a matter of a week or three. The SPX:VIX ratio chart will become more important once the market correction arrives. 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.