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Volatility Update: VIX Creeps Higher from Recent 52-Week Low

September 1, 2016
Risky foot bridge: Volatility indexes show low levels but above year-ago August lows.

Labor Day is dedicated to the social and economic achievements of American workers. Celebrated on the first Monday of September, the holiday is a tribute to the prosperity and well-being of the country, which would not be possible without the contributions from workers. This year, we might take a moment to recognize the CBOE Volatility Index (VIX) on Labor Day, as it has been attempting to work higher from the low levels seen in early August.

Rounding Out a Low from 11

VIX is a widely watched measure of implied volatility derived from S&P 500 Index (SPX) options. It typically moves higher when the stock market moves lower. Because of this inverse relationship with stock prices, the VIX is called the “fear gauge” because it produces extreme readings during times of market uncertainty, negativity, or panic.

High readings from VIX have not been seen for more than two months. Figure 1 shows the action over the past year, and you can see the index fell to a 52-week low of 11.02 in early August, a far cry from the mid-20s in late June. As it approached 11, VIX dropped to its lowest levels since August 5, 2015 (when, incidentally, it briefly dipped to 10.88 before rocketing to more than 53 by August 24). The index finished last week near 13 and roughly 15% above its 52-week lows.

CBOE Volatility Index


The market’s “fear gauge” rose modestly last week. Data source: CBOE. Chart source: the TD Ameritrade thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Big Picture: Volatility Creeping Higher

VIX isn’t the only volatility index moving higher lately. Take a look at the table below. All of the VIX-like indexes in the list touched 52-week lows at some point in August before working higher through the end of last week. For instance, implied volatility of the NASDAQ-100 (VXN) touched a 52-week low on August 23 before climbing 10.5%. The Dow Industrials volatility (VXD) dropped to 11.08 on August 19 before ticking modestly higher last week.

IndexSymbol52-Week Low52-Week Low DateRecentChange
S&P 500VIX11.0208/09/1612.7115.3%
Dow IndustrialsVXD11.0808/19/1611.978.0%
Russell 2000RVX15.0808/15/1616.8711.9%
Crude OilOVX34.3908/18/1636.325.6%
Emerging MarketsVXEEM17.5908/09/1619.6411.7%
Euro CurrencyEVZ7.0108/05/168.0815.3%

The recent uptick in implied volatility doesn’t seem limited to U.S stocks. Crude oil volatility, for instance, as tracked by OVX, hit a 52-week low on August 18 and Euro Currency Volatility (EVZ) rose 15% from its 52-week low set on August 5. Finally, figure 2 shows how volatility of the emerging markets, or VXEEM, creeped higher last week.

Volatility for emerging markets


Like VIX, the volatility index for emerging markets fell to a 52-week low earlier this month. Data source: CBOE. Chart source: the TD Ameritrade thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

In conclusion, recent readings from VIX are not high and well off levels seen a year ago, but they’re also climbing above the 52-week low from early August. This is true for many volatility indexes, including those that track the euro currency, international markets, and crude oil. It’s a sign, perhaps, that market participants are bracing for the possibility that market volatility might continue working higher after the Labor Day break.

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