VIX and VIX ETNs fall broadly for the week despite fears of fiscal cliff, European recession, falling equities and escalating Middle Eastern conflict.
VIX, the CBOE S&P 500 Volatility Index, also known as the “fear” indicator, fell sharply this week in spite of plenty of scary news at home and abroad.
The fiscal cliff continues to be a problem, although Friday’s meeting among political leaders at the White House was termed “constructive” and so apparently soothed some of those fears. Fiscal Cliff Fears Ease On Friday
Europe is now officially in recession and things continue heating up in the Middle East as rockets hit around Jerusalem and Tel Aviv. Euro Zone Recession Takes Toll On Stocks
Nevertheless, speculators in the “fear” index seem quite complacent that everything is going to work out as the index fell and remains well below its long term averages.
The major U.S. index ETFs are down for multiple weeks in a row and the S&P 500 (NYSEARCA:SPY) is off 7.2% from its September high while the Dow Jones Industrial Average (NYSEARCA:DIA) is off more than 1,000 points.
During that period, the VIX is up some 17% but has been treading sideways for the past month or so during the current correction.
chart courtesy of StockCharts.com
In the chart of VIX above, we can see how the index spiked off long term lows made in mid-September, breached the 50 and 200 day moving averages and then fell back to current levels just above the 50 day moving average but well below the long term average in the 20s.
The reason for this complacency can be pinpointed to several possible factors.