The Cboe Volatility Index is Wall Street’s method for measuring fear. The VIX, as it’s also called, measures how much volatility investors expect by tracking the prices of options on the S&P 500. The faster it rises, the more concerned investors are about owning risky assets like stocks.
“This is an over-referenced tool but in times of stress it is a useful one,” he said.
Wednesday closed at 25, which Colas pointed out is still below the 26 to 27 levels from earlier in October.
“That’s not good, considering today’s decline,” he said. “A real bottom would have a higher VIX.”
The number to watch for is 28, he said, which is one standard deviation from the long run mean. The next level to watch is 36, which is two standard deviations away.
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