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Sound Advice: April 8, 2025

Watch the VIX.  When it’s above 40, it’s often a buy signal. 

What’s the VIX?  That’s the ticker symbol for what’s formally known as the Chicago Board Options Exchange index of the stock market’s expectation of volatility over the next 30 days.  It’s also known as the Fear Gauge.  As investors become more fearful, the VIX rises.

Much of the time, the VIX tends to stay in a range of 10 to 20.  When uncertainty and stress increase, so does the VIX.  When it climbs above 40, it’s a sign that investors are pushing the panic button.  More often than not, that’s a green light, not a red one.

A graph showing the growth of a stock market AI-generated content may be incorrect.

The VIX chart above tells the story.  Over the 35-year span, the index first climbed above 40 on September 30, 1998.  It stayed there for the next two weeks. Why? Investors were disappointed by the Fed’s decision to cut interest rates by only 0.25%, half of what they had hoped for.

The next jump took place on September 17, 2001 and lasted for a week.  It was followed by three-day rises starting on July 22, 2002, again on August 5, 2002, and then again beginning on October 7, 2002.  That was all about the burst of the dot.com bubble.  Markets had soared to unsustainable valuations and investor confidence plunged.

But these were baby bumps compared with the extreme fear prevailing during the banking crisis of 2008-9.  At the time, the VIX crossed 40 on September 18, 2008, soared to just under 90 on October 24, 2008, and didn’t settle below 40 until almost seven months later.

A few brief pops took place on May 6th and 7th of 2010 and again on May 20th and 25th.  There was more of the same during August thru October the following year.  That was known as the Flash Crash.  The Greek economy was collapsing, high frequency trading got out of control, and market liquidity temporarily vanished.

Investors were calm from then until February, 2018, when the VIX briefly rose above 40 on two days. This time, the market was spooked by inflation fears, rising interest rates, and stock valuations near 18-year highs.

And then there was COVID, concern about which pushed the VIX above 40 starting on February 28, 2020, rocketed to the mid 80s three weeks later, and eased below 40 on May 4th, followed by a pair of brief rises in mid-June and late October.

With one exception, the market was higher six months later.  For that exception, the wait for recovery was longer.

So here we are now with the VIX shooting skyward and investors are rattled. 

Best advice:

”The way to make money is to buy when blood is running in the streets.”

John D. Rockefeller

N. Russell Wayne

Weston, CT  06883

203-895-8877

 www.soundasset.blogspot.com

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