What’s Causing This VIX Rally?

Hey Traders,

On a day when the S&P 500 was down just 3.45 points — less than .1% — we saw the VIX make a really big move higher.

Yes, we might account a little of it to coming off a weekend …

Remember VIX undergoes a “weekend effect” that causes it to rise a touch on Mondays and have a head wind the rest of the week.

Even still, VIX’s 1.88 move up is prettay, prettay strong.

So, what could be causing the VIX to rally in the face of a super-slow SPX day?

Take a look at these three tick charts …

The top chart is the SPX on Monday, the bottom is VIX …

OK, but VIX actually seems to track that middle chart better than the SPX, doesn’t it?

What is that mysterious middle chart? Some of you may have already guessed …

It is the Russell 2000 Index (Ticker: RUT), which tracks the smallest 2,000 stocks in the Russell 3000 Index (Ticker: RUA).

VIX actually tracked RUT better than SPX yesterday.


The RUT and  iShares Russell 2000 ETF (Ticker: IWM) is where ALL the action is in the markets right now …

It’s where all the perceived market risk is forming…

If RUT drops and the RVX Index — the VIX of the RUT– goes up, even if the S&P 500 is flat, VIX is going to go higher for the time being (that is not always the case).

RVX is now back to serious “uh-oh”  levels at over 33.

Meanwhile, the spread between RVX and VIX is now 13 …

That’s the widest spread since June of 2020, when we had a mini volatility swell.

Its absolute PEAK since the pandemic began was a close of 16.26.

For RVX to get that high, we would need several more days of RUT selling off 3% a day.

IF the RUT keeps this pace up, both RVX and the VIX will rally, (although unless the SPX starts really moving with RUT, RVX will outperform).

This would put the VIX at about 25-26 and the RVX over 40.

Could it happen? Sure, we have seen weirder. (Hello, GameStop.)

But …

This trade is getting really stretched.

The VIX Light is Red, and Volatility Is Likely to Drop.

Your Only Option,

Mark Sebastian 

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