VIX Volatility and SPX S&P 500 Daily Charts; Traders Most Complacent and Fearless Since US Stock Market Topped-Out 16 Months Ago

The business media is all a flutter about the VIX, the so-called "fear gauge," losing its luster as a stock market indicator. The rise of zero-days-to-expire options is taking some of the money that used to buy and sell the VIX. Traders choose to gamble on 0-DTE instead of the VIX. Less interest in the VIX causes prices to drop and analysts and pundits to proclaim that the VIX is dead and there is a new 0-DTE sheriff in town that will tell you when to be happy and when to worry.

Data sets will still exhibit the same trend even with less data provided. Of course you cannot take an extremely small sample size but at these volumes, there is nothing wrong with the VIX. Keystone ran into this when writing the 3-year Coronavirus Chronology when pundits proclaimed that less data, in this case COVID-19 cases, hospitalizations, deaths, etc..., prohibited anyone from forecasting trends. The idiots were wrong. The trends were still there (Keystone forecasted the developing COVID-19 infection waves around the world during the pandemic and warned governments to prepare for the pending outbreaks) and they will be there with the VIX.

VIX drops to a 16-handle not seen since the US stock market topped-out 16 months ago. Sweet 16.

The chart shows that all the tops since late 2021 come with the VIX at 19-ish or lower. Conversely, all the market tops occur when volatility spiked above 31-ish. A high VIX represents volatile markets which is a watered-down way of telling clients that are long stocks that they are losing their shirts.

The choppy slop in the stock market is ongoing since the tail-end of last year. As the 0-DTE options take hold, you can see the choppy sideways slop in the VIX. Nonetheless, volatility drops to below 17 by a hair in February marking a top in the stock market (complacency) and the 31 in the VIX in March identified the bottom in the market as traders and investors sold stocks worried about the end of times (panic).

The VIX drops to the 16-month low and it will signal a top again it is only a question of where the SPX peaks. The fractal from August-December may repeat for February-April (blue boxes). The VIX drops lower in December but note that the SPX was not higher (the VIX and SPX move inversely more than 90% of the time). The December swoon quickly followed.

The same fractal repeats now with the VIX dropping below February's low but the SPX is not above the February high. Will there be a May swoon like December? The old Wall Street adage says, "Sell in May and go away."

The VIX will remain a useful stock market indicator. The spikes up and down may become more sharp but the trends and forecasting insight should remain as the chart displays above. Earnings are important this week with one-third of the S&P 500 stocks and nearly one-half of the Dow stocks reporting. 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.