S&P500 Breaks Out of the Range – and It’s Down

S&P500 Breaks Out to the Downside

S&P500 had been trading in a narrow range (1430-1465) for more than 1.5 months and the question was when it would break out and to which side. We got the answer earlier this week, when S&P500 broke out to the downside and quickly stabilized one congestion area lower, around 1410. It was trading sideways for the rest of the week and closed at 1411.94 on Friday.

S&P500

VIX Highest Since 1 August

VIX was up and closed at 18.83 on Tuesday, the highest since 1 August. It lost part of its gains in the second half of the week, but still closed at 17.81, the highest weekly close since June.

VIX (CBOE Volatility Index)

VIX Futures Curve

VIX futures curve flattened this week, with the short end going up 0.45-0.55 points and the long end losing a similar amount. On the chart below you can see how the current curve (green) compares with that on 5 September (blue), the day when S&P500 was on a similar level as it is today, before breaking out higher. Spot VIX and the short end of the curve are almost the same, but the long end (even when taking the calendar shift into consideration) is about 5 points lower. Is the mid-2013 volatility at 23 too cheap already, or at least a good bet? It might well be (no recommendations though, as always).

VIX futures curve

VXV Near 20, But Not Above

Regarding the recent move it is good to check VXV too (CBOE S&P 500 3-Month Volatility Index – an index measuring 3-month implied volatility of S&P500 options, using the same logic as the 30-day VIX). Like the VIX, VXV increased this week, but failed to exceed the psychological level of 20 and closed at 19.02, the highest weekly close since the end of August (not June like the VIX).

VXV (CBOE S&P 500 3-Month Volatility Index)

VIX/VXV Ratio Highest in 2012

The ratio between VIX and VXV went up recently and closed at 0.94 on Friday. It was as high as 0.97 on Tuesday close, the highest reading since autumn 2011 (when volatility was much higher than now).

VIX/VXV ratio, 2010-2012