LONG TERM VIX
Over the past sixteen years, VIX (aka “the fear index”) has pierced through the “danger zone” of 40-45% volatility on six different occasions. Each of those occasions marked a bottom or near-bottom in SPX.
Five of those six SPX bottoms were signaled early via positive/bullish divergence on the VIX (exception was the interim bottom of 2001).
On the linked chart the regular VIX is on top with SPX and the INVERTED VIX overlaid on the bottom panel, making it a bit easier to read divergences.
Obviously 2008-2009 was the black-swan exception, where the bottom was QUITE A BIT LOWER than expected; nonetheless the Mar ’09 bottom was predicted by a very strong bullish divergence on VIX.
And yes, I am calling our current VIX a “near bottom” signal for SPX, because in October when SPX made a new low, VIX failed to make a new high, hence we are currently operating under a bullish divergent VIX signal.
http://stockcharts.com/h-sc/ui?s=$VIX&p ... =236164135
Conclusions? Perhaps just two obvious either/or scenarios: Either we are near a bottom where SPX will rally and VIX will calmly return below 30 and STAY under there, or the markets will insist on another anomaly crash where SPX makes deeper lows and VIX returns to >49, in which case, it was nice knowing you all.
[Caveat: my eyeballs are aging; best to double check all this]
PS: Some of this is arguable, eg: u can argue that in 1998 the VIX gave a coincident indication, not a leading signal of a bottom, etc. etc…..
Just note that sometimes these signals take a month or more to work out…and that a “near bottom”, in terms of our bank accounts and our patience, can be VERY different from a “bottom.”