The confusion continues regarding recent VIX underperformance, so for what it's worth, here's my opinion on it.
The VIX rose 50% in about half a week last week from levels that were at best "fair" vs. realized volatility. At peak, it sat nearly 45% above the 10-Day SMA. To say it got overbought is an understatement.
This week is more about catch-up than anything else. That is, the market somewhat catching up to what the VIX already priced in. If you put one day in a vacuum and see down SPX and down VIX it looks odd, but in the context of a giant VIX lift just a week ago, it makes more sense.
Also remember the VIX measures volatility, it's not an Inverse ETF. Even a decline can be somewhat orderly. There were stretches in 2008 when the market couldn't catch a bid while the VIX drifted. In fact we struggled for explanations then too.
Going forward we'll see the more traditional relationship resurface. A few more days of market ugliness, particularly a decisive break of this SPX 1085 level that everyone is hyperfocused on, and the VIX will break last week's highs.
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