The CBOE Volatility Index ($VIX) is down again, with the S&P 500 moving in the opposite direction...will it last?

By Jeffrey Cohen, President of US Advanced Computing Infrastructure, Inc.

What is the CBOE Volatility Index, or VIX?

The VIX is a traded index that is based on a forward-looking volatility estimate for the S&P 500 Index (options:SPX) in the near-term. It is based on the prices of options on the SPX. It is called a fear index or considered a price of downward insurance on U.S. stock prices.

This is different than a historical volatility metric which we use in the Chicago Quantum Net Score (CQNS) which looks at variance over the past year.

For those who appreciate a traded stock or exchange traded fund (ETF) instead of a theoretical index value, we follow the ProShares VIX Short-Term Futures ETF (VIXY). 

We used to measure the BETA of the VIXY when we loaded our model with cross-commodity ETFs, and it was always significant and negative. This means the VIXY, and the VIX, typically moves in an inverse direction to the S&P 500 Index.

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The charts we see are from April 1, 2024 through today, daily chart with candles. The blue line is the S&P 500 Equity Index.

What we see is a significant increase in the VIX from April 1 - April 19, which corresponds to a fall in the S&P 500. As the VIX fell through May 21st, the S&P rose, and continued to rise as the VIX rose briefly, then fell again to where we are today.

The question we ask: Will the VIX remain at low levels for the foreseeable future, which is bullish for the S&P 500 and foreshadows a calm, rising, Summer U.S. equity market from the current level of 5,438, or will it rise again and and bring the S&P 500 back below 5,200?

We suggest that the VIX is an important equity valuation metric and we are not sure it stays low, at or below 12.25 for even the next 2-3 weeks. This suggests a correction could be ahead.

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