Monday, August 31, 2015

A Note on the VIX/VXV Ratio - Declines Probably Still to Come

Interestingly on the recent massive sell off in stocks, the VIX/VXV ratio has spiked and remained elevated above the 1.0 level which is a theoretical extreme high level.

The last time we saw a massive sell off similar to the current one was in August 2011 in which case the VIX/VXV stayed elevated above 1.0 for the waterfall decline and the initial rally off the 8-9-11 waterfall decline low into the 8-17-11 high after which a sharp couple days decline occurred and retested the low.

The VIX/VXV then remained above 1.0 until right at the peak of the following rally into August 31, 2011 where price immediately rolled over again.

So the point here, is that the current elevated VIX/VXV ratio shows fear in the market, and with price rallying hard without the ratio dropping back to more normal ranges, the stage appears still set for a volatile re-test and or break of the lows in the coming weeks.


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