Is a VIX below 11 bearish for the market?

Many market pundits have pointed out the low VIX over the past weeks, with the last three days even below 11, as a reason of a pending (large) market correction because traders and investors are supposedly “complacent”, and “without fear”. But, is that the correct assessment?

We think it is not. Why? The VIX is a measure of volatility first and foremost. Not of complacency or fear. Yes, the VIX is also referred to as the “fear indicator”, but there’s only “fear” when the VIX spikes. Other than that it simple measures volatility. Over 26 years of VIX data shows that bull markets occur both with a “high VIX”; over 15, and a “low VIX”; below 15 or even 11 with occasional spikes higher.  See Figure 1.

Figure 1: VIX since 1990


The figure shows this “bull markets have both high and low VIX readings” clearly.

Take for example the period 2009-2012 (most recent green “high VIX” box). During that period the S&P500 rallied from the 600’s to 1400’s (a 125% increase) while the VIX was almost never below 15.

Then from late 2012 to the middle of 2015 (most recent red “low VIX” box) the S&P500 rallied from mid-1300s to 2100 (a more than 60% increase)  while the VIX was mostly below 15 and even 11 with some occasional spikes.

Hence long term there is actually no real relationship between VIX and price, other than that the VIX always spikes higher during corrections.

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