Frowning Horticulturalists

The key discussion point on Twitter today was the phenomenon of a rising VIX alongside a rising SPX. Dr. Brett has the data:

I went to the all-purpose database and found only 13 occasions since 1990 in which SPY has been up more than 2% on the day and VIX has closed higher on the day. Two days later, SPY has averaged a change of -.32% (5 up, 8 down), compared with the average change of -.23% (87 up, 79 down) for the remainder of instances when SPY rose by 2% or more with a falling VIX.

Others have looked at this as well, and the consensus seems to be for limited upside in the short term, with some room for upside several weeks out. Of course, with so few data points, it’s not exactly a tradable conclusion.  As I mentioned on Twitter, today has the feeling of a green shoots party (SPX rising) amidst some frowning horticulturalists (VIX rising, too).  When the market seems to be acting strangely, it’s always dangerous to assume that the momentum side of things is irrational and childish, versus contrarian adults looking for mean reversion. Even so, while it may be a little early to be piling into short positions, I don’t see a case here for upside exposure in the short or medium term (and certainly not for the long haul).

For more VIX-related interpretation, see:

• Daily Options Report, What That VIX May Be Telling You
• VIX and More, Some Thoughts on Current Volatility
• VIX and More, VXX Volume Spiking to New Record
• Our weekly Volatility Tracker

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