The VIX measures the market’s expectation of 30-day volatility using SPX option prices.
Because it reflects real-time hedging demand and fear levels, it tends to move violently during stress periods and collapse when investors become complacent.
This behaviour makes the VIX one of the most effective short- and mid-term indicators for equity turning points.
The chart above shows this clearly:
• 🔺 When the VIX spikes sharply (red arrows), the S&P 500 is usually in a capitulation phase driven by forced selling.
• 📉 These spikes almost always align with local bottoms in the index (green arrows), as panic exhausts itself and liquidity stabilises.
• 📈 Once volatility mean-reverts lower, equities typically recover strongly from oversold conditions.
• ⚠️ When the VIX collapses to structural lows, forward returns weaken and the probability of pullbacks increases.
Why this matters for long-term performance:
• 🎯 Buying SPY during volatility spikes has historically delivered superior forward returns compared with adding exposure during low-volatility periods.
• 💰 High VIX readings correspond to discounted prices, elevated risk premia, and stronger 6–12 month forward outcomes.
• 🟡 Low VIX environments, like the current one, signal complacency and a less attractive asymmetry for new entries.
In our view, the present volatility reset — with the VIX back near its lower range while the S&P 500 hits new highs — argues for caution.
It does not imply an immediate top, but it does suggest that the balance of risk favours patience over aggressive entries.
Because it reflects real-time hedging demand and fear levels, it tends to move violently during stress periods and collapse when investors become complacent.
This behaviour makes the VIX one of the most effective short- and mid-term indicators for equity turning points.
The chart above shows this clearly:
• 🔺 When the VIX spikes sharply (red arrows), the S&P 500 is usually in a capitulation phase driven by forced selling.
• 📉 These spikes almost always align with local bottoms in the index (green arrows), as panic exhausts itself and liquidity stabilises.
• 📈 Once volatility mean-reverts lower, equities typically recover strongly from oversold conditions.
• ⚠️ When the VIX collapses to structural lows, forward returns weaken and the probability of pullbacks increases.
Why this matters for long-term performance:
• 🎯 Buying SPY during volatility spikes has historically delivered superior forward returns compared with adding exposure during low-volatility periods.
• 💰 High VIX readings correspond to discounted prices, elevated risk premia, and stronger 6–12 month forward outcomes.
• 🟡 Low VIX environments, like the current one, signal complacency and a less attractive asymmetry for new entries.
In our view, the present volatility reset — with the VIX back near its lower range while the S&P 500 hits new highs — argues for caution.
It does not imply an immediate top, but it does suggest that the balance of risk favours patience over aggressive entries.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.