The VIX vs S&P500

14 April 2023

The VIX (CBOE) is known as “the fear index” and can be used to gauge market sentiment. With our base view being bearish, we aren’t too optimistic on a 6 to 12 month view generally, and the VIX can be used by investors to engage in some profit taking. We feel when the Vix is at above 30 (marked in orange) it is a good starting point to dip your toes into equities (as there is no perfect way of predicting the bottom, we can dollar cost average into quality stocks in times of market-wide weakness), while anything below 20 (due to our bearish view) marked in green is a time to take profit, and has worked out well over the last 15-months.

Currently with the VIX at 19.10, we do find it hard to recommend buying into stocks and this why we have a cautious view on the market. We are still far away from market panic or capitulation, which is still a possible risk given inflated valuations across most of the market and deflated earnings outlook, and why we prefer to have some dry powder (cash) for that situation. To put that into context the Covid sell-off had the VIX peak at 85GFC at 89, and during the slower and more isolated Dot Com crash the VIX peaked at 48, while the Russian and Asian Financial Crises had a Vix of 49 and 38 respectively.

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