The
VIX serves as a sort of "fear gauge" for the stock market… The index
measures the prices people are willing to pay for options that protect
the value of their stock holdings. The higher the VIX, the more people
will pay to insure their stocks… hence, the more scared they feel. And
when investors and traders are scared, they also sell assets they deem
risky… And as we know, when the herd is selling, bargains abound.
The chart below is a five-year chart of the S&P 500. Beneath that is a corresponding chart of the VIX for the same time period. As you can see… sharp rises in the VIX usually correspond with market bottoms. In September 2008, the market fell off a cliff. That's the month investment bank Lehman Brothers went bust. Investors were selling indiscriminately. The financial markets were panicked. The VIX, as you can see, quadrupled to 80.
The chart below is a five-year chart of the S&P 500. Beneath that is a corresponding chart of the VIX for the same time period. As you can see… sharp rises in the VIX usually correspond with market bottoms. In September 2008, the market fell off a cliff. That's the month investment bank Lehman Brothers went bust. Investors were selling indiscriminately. The financial markets were panicked. The VIX, as you can see, quadrupled to 80.
Today,
the market is scared… notably of a slowdown in China and a collapse in
Europe. The S&P 500 has sold off 10% from its 2012 high in April.
And the VIX has increased from around 15 then to above 27 yesterday.
We're far from extreme panic of late 2008.
No comments:
Post a Comment