whitenoise01 vix=48 arrived at last year, during the 21 May 2010

What are the VIX and XVI saying, after the fall?

Posted By :Wai-Yee Chen on:8/08/2011 12:02:00 AM

vix, xvi, market sell off, volatilit spike, volatility index, fear gauge

1. VIX at 32% The widely watched CBOE Volatility Index VIX, which is commonly known as the “investor fear gauge”closed at 32 on Friday 5 August in the US. That wasn’t the highest reading. It spiked to a recent all time high of 39.25 during the day. The biggest one day jump though was on Thursday in the US following the over 500 point plunge where volatility jumped by 29% in just one day. Well, 39.25 intra-day high seemed high, but even that is not the all time record. The recent all time intra-day high was at 48 arrived at last year, during the 21 May 2010 market plunge due to the outbreak of the Greek crisis (The all time record would be during the financial crisis in Mar 2009, where VIX reached as high as 57). The reading we are seeing at the moment is still not the highest. But to put it in perspective, the 32 reading at the close is compared to a benign average in the month of July of 19.22. That is a big spike in a month. 2. XVI closed at 31.86% Bringing us back closer to home, the Australian VIX which is the XVI on Friday was at 31.86, that’s a spike of 26% from the day before, just 3% shy of the VIX’s 29% jump. Is this reading the highest for Australia? No. The last time the XJO fell to the all time low was during the same greek crisis when the XJO tanked to the lowest then of 4175 points. At that level, the XVI was at 33.22 and peaked two days later to 34.23 (after the market has recovered from the low). With the current reading of the XJO after Friday sitting at 4105 (below the last low) and yet with a XVI of 31.86 (still not as high as the last higher low), like the US, we may not have seen the peak yet with volatility. However, we need to remember that VIX or XVI are volatility gauges. It can either stay elevated for a period of time or it can spike before or after market has seen the bottom, it’s not necessarily a predictor of a turn in the market. What we know though is that volatility is not yet over. Whether it will be as high as the last reading or make a new high, we can only stay posted.