The VIX, as we know it, is trading near lows not seen since February 2007. The original VIX, which has a price history going all the way back to 1986, just fell to an all-time low. By this measure volatility has never been lower, the implication is not what many would expect.
The VIX as we know it is trading near an 88-month low, but the ‘original’ VIX – VXO – just dropped to an all-time low.
What is VXO, aka the ‘original’ VIX?
According to the Chicago Board Options Exchange (CBOE), the VXO is now known as the CBOE S&P 100 Volatility Index. In 2003, the original VIX was renamed VXO and replaced by the VIX as we know it today. The VIX is based on prices of S&P 500.
VXO (prior to 2003 called VIX) is based on S&P 100 options. The S&P 100 captures 57% of the market cap of the S&P 500 (NYSEArca: SPY) and includes the largest and most established companies of the S&P 500.
The VXO has a price history dating back to 1987, which includes the 1987 stock market crash, ‘affectionately’ dubbed ‘Black Monday.’
The chart below plots the S&P 500 against the VXO (going all the way back to 1986).
The only way to stuff 38 years of price history legibly into one chart is with monthly bars. However, it’s a bit difficult to discern certain correlations on monthly bars.
What we can see is that the VXO fell to an all-time low last week. Lower than it was prior to the 1987, 2000, and 2007 market crashes.
Many mistakenly conclude that a low VIX (or low VXO) foreshadows a major market top. This is false. A special report issued by the Profit Radar Report examines the evidence and came up with a surprising conclusion: The VIX is actually too low for a major market top (click here to gain access to this VIX report).
But that doesn’t mean that the VIX can’t go any higher. In fact, this chart – which correctly predicted that the VIX will continue to slide lower until now – shows that the VIX should soon start to move higher.
Why the VIX Should Start to Rally Soon
Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.
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