What the VIX tells us about the next decade

2020年3月17日

I want to followup my last post about the VIX and how its weekly solid bullish bars gave a warning that the selloff and heightened fear was not yet over. The chart did indeed give foresight into these last two week where the FUD has continued. As this spike in volatility tries to test the 2008 highs it is creating the "new normal" which we can use to time selloffs well into the next decade.

The 2008 crash and its Ichimoku level that setup were the trigger for the high of volatility years later in 2015. For a little explanation, the Ichimoku lines are simply the median between the high and low for a certain period of time. This can create Support and Resistance useful in timing trades as well as analysis. So by looking at the grand large picture of the Monthly timeframe VIX we can see multi-year levels.

Since the VIX is basically a 1 to 100 proposition the median, or halfway point, is going to hover somewhere around 50 by nature. The extra data that we can extrapolate from using these levels comes in how they are relative to volatility over a period of time. So long as the VIX does not come close to topping out completely at 100 the new median line of volatility will be less than the one set by 2008. This is due to the prolonged years from 2013 to 2019 of historically prolonged low volatility.

What does this mean? It could mean that selloffs in the next decade could be less severe in terms of volatility which correlates to actual percentage drops in the S&P 500.