Huge VIX Spike Up – August 2024

Did the gigantic S&P 500 Volatility Index (VIX) move up on 0/05/24 signal a significant bottom?

The weekly VIX chart courtesy of Trading View gives perspective to the huge spike.

On 08/05/24 VIX reached 65.73 which is second only to what happened in the March 2020 stock market.  The big difference is that in March 2020 the S&P 500 (SPX) declined 35.60% from its all-time high made in February 2020.   The SPX  drop from its 07/16/24 all-time high was only 9.5%. 

Normally the VIX level made on 08/05/24 would correspond with at least a multi- month rally.  However, you would expect something larger than a 9.5% SPX decline to generate that level of fear.

Also suspicious is the action of the Put/Call (PC) ratio on 08/05/24.  Sometimes PC moves above 1.15 correspond with SPX bottoms.  On 08/05/24 PC only reached 1.11.  It’s unusual PC had such a low reading relative to VIX.

The daily VIX chart from 2015  to 2016 could give clues to what may happen in the near future. 

In August 2015 the SPX fell 12.20% from its July 2015 peak, this generated a VIX reading of 53.29 which was confirmed by a PC move above 1.15.

Subsequently the SPX rallied for more than two months before declining again.  The second  SPX decline ultimately went below the August 2015 bottom in January 2016.

Perhaps something similar could happen in 2024.  Maybe the SPX 08/05/24 bottom holds, and SPX continues to rally into mid – September 2024, just before the next U.S. – FOMC interest rate decision on 09/18/24.  If the announcement is perceived as bearish for U.S. stocks it could trigger another drop into a bottom sometime in October 2024. 

This scenario ties in with U.S. stock seasonal patterns and also with prior July to October declines illustrated in the 07/20/24 blog “Examination of S&P 500 – July Tops”.