What a Rapid-Fire VIX Double Means for Stocks

The VIX more than doubled in just eight sessions

Aug 7, 2019 at 1:44 PM
facebook X logo linkedin


After falling every single day last week, stocks on Monday suffered their worst one-day sell-off of 2019, as the U.S.-China trade war came to a boil. As a result, the Cboe Volatility Index (VIX) -- also known as Wall Street's "fear gauge" -- skyrocketed into territory not charted since early January. In fact, the VIX's surge was so dramatic it set off a signal seen only four other times in the index's history. Below, we take a look at what that could mean for stocks over the next year.

The VIX settled at 12.07 on Wednesday, July 24; by Monday, Aug. 5, it had more than doubled to land at 24.59. Per Schaeffer's Quantitative Analyst Chris Prybal, there have been just five times ever when the VIX skyrocketed 100% or more in a matter of just eight sessions (not considering redundant signals).

The last time it happened was in mid-October 2018, at the start of the fourth-quarter sell-off. The VIX actually tripled in short order back in early February 2018, which marked the first signal since the August 2015 doldrums. In fact, it's interesting that three of the five signals happened in the month of August, with the first occurring in 2011.

VIX chart aug 7

A week after previous signals, the S&P 500 Index (SPX) was higher 100% of the time, averaging a gain of 2.6%. Though it's obviously a small sample size, that's far better than the index's average anytime one-week return of 0.2%, with 60% positive, looking at data since 2011. The S&P also racked up stronger-than-usual returns at the one-, three-, six-, and 12-month markers.

SPX after VIX doubles

And, as you might've guessed from the encouraging SPX stats above, the famously mean-reverting VIX tends to cool off significantly after quick-and-dirty pops. In fact, the "fear index" averages a negative return at every single checkpoint, giving up an average of 22.9% one week later. That's compared to an average anytime one-week gain of 1.3% since 2011. By one year out, the VIX was down more than 60%, on average, compared to an average anytime annual return of 2.1%.

VIX after VIX doubles 2

In conclusion, while stocks are significantly lower again today, history favors the bulls over the long haul after one of these signals. However, the market's near-term trajectory could depend on macro events, including U.S.-China trade negotiations -- expected to resume in September -- and Fed policy. In addition, volatility could remain a factor for a while; note that the standard deviation of S&P 500 returns after these VIX signals is higher than usual at nearly every checkpoint.

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI