Hi I'm Goose and I'm apparently obsessed with the VIX this week. I would say I've reached a point of borderline stalker, going through historical data, working up average all time range theories, and ultimately writing a script that will give me a bar count inside and outside of a date and price range and the percentage of time during that period that the VIX has gone wild. I used this script compare these statistics across the daily chart in different sections of time. Now, I did this because I am anticipating a return to mean with the VIX any moment now. I'm tapping my fingers and getting impatient. And not because I'm waiting for a rally, I mean, a rally would be cool, but because this has gone on long enough really.
So I decided to compare the 2008 Crash historical data with the more recent Covid data. If you haven't read the in's and out's, the timeline and the reasons why, go do that right now. Or just watch The Big Short a couple of times for the cliff notes. But for the sake of this chart, I marked up some of the important moments during what is now known as the Housing Crisis/Great Recession. Theoretically I could have made arguments to drag this period out to 2014, but comparably it makes little sense and frankly, even further drives my theory, so I ended the period when the market had recovered its 50% losses from pre crash peaks. Keep in mind, current markets recovered and S&P Futures made a new high in just under 6 months from the Covid Crash. So this is already an unfair comparison. And that is kind of my point. Comparable factors like unemployment and U.S. Homeownership are actually contradictory for the most part if you omit the summer of 2020. And if you're in the group, as I am, that believes low unemployment numbers promote higher inflation numbers, then we could argue inflation begun, albeit transitory, in May and July of 2018 when unemployment dropped below 4% and really got a foothold in 2019. All it needed was a supply chain interruption. And I know Covid takes the blame for that, but that had started also. China trade, pine beetles, metal shortages, coffee , etc... So when Covid whooped the employment numbers 10 points from March at 4.4%, to April at 14.7%, it basically created a sling shot effect with equities. Come August of 2020 when those numbers rapidly dropped to 8.4% we made brand new highs. And within a year we had dropped back to where we started in the upper 4% range. I know I'm on a tangent, but why is this important? Because in the Covid Market, we turned those numbers around in 1 year, as opposed to the 5 years it took to recover AFTER the end of the Recession and its 5 year recovery. Soooo... That's why I'm not counting that period, and why I'm calling out VIX on is behavior.
So lets get to my point. Is the new normal volatile AF ? As it currently stands, and based on a range of $10-$20 dollars which I determined to be fair visually for the initial part of this work up, the VIX has spent 5% more days above the standard range. Now 5% isn't a deal breaker. We can find dramatic headlines that will excuse random volatility but I will argue we are at a crossroads. If we continue to stay above $20, we risk having to work hard and longer to get that figure back down. Remember calculating your GPA , but in reverse. Eventually the shock and awe of a +$30 VIX won't induce the same FOMO reaction and things may get really weird. When VIX goes into the new year, the powers that be will need to reign her in to avoid decoupling on any given Wednesday instead of just low liquidity holidays. My theory actually goes further down the rabbit hole when I narrowed down a true 50% average range, wait for it.... $10 - $16.75! YES! The overall, from inception, average high of range sits at $16.75. And pop on the tin foil hat because with that range, both the Housing Crisis/Great Recession AND the Covid Market are sitting at 91% above range. I checked that 3 times to be sure and I did not include that in the frame of this chart as it already had enough scribbling all over it, but if you explore to the bottom of the chart you will see a smashed up mess of it. So if your listening Market Makers, shut it down, shut it down now. And if that is what you are setting up to do as I have already speculated in a previous work up, well done! Keep it up. I know for a fact that the VIX is heavily relied upon by many successful traders in many different products for directional bias, let's not ruin it shall we...
On this chart you will see the table bar counts for inside and outside of price range for the specified period as well as the total bar count and the percentage of bars outside of that range.
That means up OR down so the period between the Recession and Covid has 12% outside of range, but you will notice that it goes below the range as well. When the price range was moved down
beneath the lows to $8, it lowered the percentage by 3 points.
I have also labeled some fun facts that occurred during the historical period to show a bit about why I choose the dates that I did.
Leave a comment for a heated debate, or to tell me how cool I am, or that I'm just a silly Goose.
https://en.wikipedia.org/wiki/Subprime_mortgage_crisis#:~:text=The%20United%20States%20subprime%20mortgage,2007%E2%80%932008%20global%20financial%20crisis.
https://www.statista.com/statistics/184902/homeownership-rate-in-the-us-since-2003/
https://data.bls.gov/timeseries/LNS14000000
So I decided to compare the 2008 Crash historical data with the more recent Covid data. If you haven't read the in's and out's, the timeline and the reasons why, go do that right now. Or just watch The Big Short a couple of times for the cliff notes. But for the sake of this chart, I marked up some of the important moments during what is now known as the Housing Crisis/Great Recession. Theoretically I could have made arguments to drag this period out to 2014, but comparably it makes little sense and frankly, even further drives my theory, so I ended the period when the market had recovered its 50% losses from pre crash peaks. Keep in mind, current markets recovered and S&P Futures made a new high in just under 6 months from the Covid Crash. So this is already an unfair comparison. And that is kind of my point. Comparable factors like unemployment and U.S. Homeownership are actually contradictory for the most part if you omit the summer of 2020. And if you're in the group, as I am, that believes low unemployment numbers promote higher inflation numbers, then we could argue inflation begun, albeit transitory, in May and July of 2018 when unemployment dropped below 4% and really got a foothold in 2019. All it needed was a supply chain interruption. And I know Covid takes the blame for that, but that had started also. China trade, pine beetles, metal shortages, coffee , etc... So when Covid whooped the employment numbers 10 points from March at 4.4%, to April at 14.7%, it basically created a sling shot effect with equities. Come August of 2020 when those numbers rapidly dropped to 8.4% we made brand new highs. And within a year we had dropped back to where we started in the upper 4% range. I know I'm on a tangent, but why is this important? Because in the Covid Market, we turned those numbers around in 1 year, as opposed to the 5 years it took to recover AFTER the end of the Recession and its 5 year recovery. Soooo... That's why I'm not counting that period, and why I'm calling out VIX on is behavior.
So lets get to my point. Is the new normal volatile AF ? As it currently stands, and based on a range of $10-$20 dollars which I determined to be fair visually for the initial part of this work up, the VIX has spent 5% more days above the standard range. Now 5% isn't a deal breaker. We can find dramatic headlines that will excuse random volatility but I will argue we are at a crossroads. If we continue to stay above $20, we risk having to work hard and longer to get that figure back down. Remember calculating your GPA , but in reverse. Eventually the shock and awe of a +$30 VIX won't induce the same FOMO reaction and things may get really weird. When VIX goes into the new year, the powers that be will need to reign her in to avoid decoupling on any given Wednesday instead of just low liquidity holidays. My theory actually goes further down the rabbit hole when I narrowed down a true 50% average range, wait for it.... $10 - $16.75! YES! The overall, from inception, average high of range sits at $16.75. And pop on the tin foil hat because with that range, both the Housing Crisis/Great Recession AND the Covid Market are sitting at 91% above range. I checked that 3 times to be sure and I did not include that in the frame of this chart as it already had enough scribbling all over it, but if you explore to the bottom of the chart you will see a smashed up mess of it. So if your listening Market Makers, shut it down, shut it down now. And if that is what you are setting up to do as I have already speculated in a previous work up, well done! Keep it up. I know for a fact that the VIX is heavily relied upon by many successful traders in many different products for directional bias, let's not ruin it shall we...
On this chart you will see the table bar counts for inside and outside of price range for the specified period as well as the total bar count and the percentage of bars outside of that range.
That means up OR down so the period between the Recession and Covid has 12% outside of range, but you will notice that it goes below the range as well. When the price range was moved down
beneath the lows to $8, it lowered the percentage by 3 points.
I have also labeled some fun facts that occurred during the historical period to show a bit about why I choose the dates that I did.
Leave a comment for a heated debate, or to tell me how cool I am, or that I'm just a silly Goose.
https://en.wikipedia.org/wiki/Subprime_mortgage_crisis#:~:text=The%20United%20States%20subprime%20mortgage,2007%E2%80%932008%20global%20financial%20crisis.
https://www.statista.com/statistics/184902/homeownership-rate-in-the-us-since-2003/
https://data.bls.gov/timeseries/LNS14000000