Yahoo Finance’s Jared Blikre breaks down the latest moves in the ‘fear index,’ the relationship between volatility and the S&P 500, and what investors are pricing in for the months ahead.
RACHELLE AKUFFO: Well, amid recent head scratching market moves, the volatility index may be pointing to a bigger trend this year regarding investors' mindsets. For more on this, here's Yahoo Finance's Jared Blikre. What have you been watching, Jared?
JARED BLIKRE: That's right. We're watching the VIX today, the so-called fear index. And I just want to put a longer term. This is a 20-year chart. And in general, when the VIX is spiking, that's indicative of more fear in the market because people are buying options on the S&P 500 Index. That's the underlying benchmark that are out of the money. And so people are betting on those higher or lower prices. Well, that translates into a higher VIX. Conversely, when it falls, well, that is the opposite. Usually, that is concurrent with a rise in the stock market.
Now it's done something pretty interesting this year. Here is the VIX. And let me put a line chart so I can show this. It has traced out a very, very horizontal sideways range, and it has touched the top and the bottom several times. And I've traced this out with the S&P 500. And so it has given a number of buy and sell signals. Now you wouldn't have known this necessarily at the time, but it's evident with hindsight.
So for instance, at the beginning of the year, we have this interim top here. This coincides with the VIX down here, making that low. And then we see the VIX down here making another low. Well, guess what? That was another interim high. And so on and so forth. We can go to this low in the S&P 500, this high in the VIX, and that was actually a great buying point.
So where we are right now, the VIX has trended lower back to the spot where, typically, equities have fallen because that is concurrent with the VIX spiking up. So we may, may be seeing a potential for a selloff right now. Now I want to leave you with another picture. This is a VIX futures curve. And without getting too far in the weeds right now, where we are current-- that's this yellow curve right here-- there is more fear of being priced into the market a few months ahead of now.
This is looking more like the August 16 high that we had in the S&P 500, rather than that October 12th low that we were coming off of. So just in terms of the structure of the futures market and everything considering the levels where we are, a little bit of caution is warranted. Guys.
RACHELLE AKUFFO: Certainly worth tracking. We're keeping an eye on that. Thank you, Jared Blikre.