The Calm Before the Storm – VIX Lows

If you're in the stock market in any way, shape or form (unless you’re short), you should be concerned. Now is not the time to hold onto your positions. This applies if you hold stocks, options, mutual funds, etc. Everything a traditional buyer would own.

I'm sure you've heard from someone somewhere, perhaps CNN or MSNBC, that the volatility in the stock market is at its lowest in years.

And they would be right.
You should be scared.

So What is Volatility

Volatility is a term that represents public sentiment in the market. If it's low, it's because there hasn't been much price action up or down, only a sideways or slowly trending market.

At the moment, the VIX (the trading symbol for volatility... yes, you can actually trade volatility!) is where it was in 2007, right before the Great Recession. When you couple this with declining volume, you should be doubly scared.

Volatility at historic lows means an inevitable swing the other way, when prices change radically and there's a significant sell off.

See the chart below (click to zoom). The current persistent low volatility shows that investors are complacent, an indication of market tops and aged rallies.

VIX Lows 2014

The Sell Off is Knocking On Our Doors

This will happen.

Neimann Capital Management, commenting in December of 2013, put it very well when they said:

Despite our successes, we can't deny that something doesn't feel right about this bull market. We all know the Fed has artificially inflated asset prices beyond our imagination, and at some point the artificial stimuli has to trigger powerful economic growth, otherwise this is going to end up being an experiment gone horribly wrong.

Here at Adaws, we strongly agree.

Another consideration is the Put / Call Open Interest Ratio on VIX Index options. On May 12th, this dropped to 0.29, the lowest reading since the start of the current rally in 2009. The current reading almost matches that of May 29, 2008, which occurred one week after the Dow peaked leading to the biggest price collapse since 1929-32.

Now is the Calm Before the Storm

You will get stung if relying on greed and emotions to generate profits. You will get stung if unsure how to read market internals, and time your entries / exits to maximize profits.

You've made your money. Tap into the remaining time and low volatility to go short and collect what the markets are ready to give. It's coming. Are you ready to hitch a ride, or butt heads?


  1. The previous time the vix was at the current level was in 1994/5 – the start of a 6yr bull run! Lies, damn lies etc

  2. Steve, go to Yahoo Finance, and pull up a graph of the VIX. February 5, 2007, the VIX was at 11.10. Today, it’s trading at 10.99.

    The graph doesn’t lie. Not sure where you are getting your information from.

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