VIX Record Gain Signals Stock Rises Since 1990
By Whitney Kisling and Nikolaj GammeltoftThe biggest quarterly increase ever in the Chicago Board Options Exchange Volatility Index pushed it above 40, a threshold exceeded only three percent of the time in 20 years and a level that has preceded stock rebounds. “A very high VIX level suggests investors have given up, they’re out of the way, and that’s a great entry point,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $340 billion, said in a telephone interview. “It’s a contrary sentiment indicator, so when the VIX surges, it says bearish sentiment verging on panic is surging. And the market’s a good buy.”
Comment: There is no such thing as a fully reliable indicator. Nevertheless, indeed, the market may be temporarily oversold.