Inside Markets — VIX Spike

The VIX Index spiked above 65 this morning but has since pulled back to ~36.  VIX levels above 20 become a headwind for equity rally attempts and levels above 30 take a few months to unwind.  Subdued levels of equity volatility were partially responsible for the multiple expansion seen over the past 9 months, and elevated volatility will now weigh on multiples until it dissipates.  The VIX hasn’t had a proper capitulation (above 30) event in 17 months, but a mostly supportive macro environment (Q2 earnings season has been better than expected) could shorten the time it takes to settle down.  An optimistic guess would be late-September/early-October.

We’ve been highlighting the damaged technical picture for the NDX and SOX over the last two weeks. The SPX joined the list of damaged charts Thursday afternoon when it broke bullish trend support of 5445.  The index now has a ‘tactically’ bearish trend until it crosses back above 5450. Selling momentum accelerated on Friday after the Jobs Report pushed the index below its 50 simple moving average (CTAs use simple moving averages as selling triggers). Today’s global risk trade has the SPX below first level support of 5225 with the 5070-5130 range as the most likely place for a short-term rebound.