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business newsVIX: Understanding the Breakdown
VIX "term structure" remains bullish - but exercise caution.
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The VIX has finally broken down.
The S&P 500's volatility index is down 3.35% to 37.55, its lowest level since January, and below any closing level since September 29. While this drop is driven by the rise in the SPX -- which is currently up 2.32% to 844.60 -- it's also attributable to the fact that the realized volatility in the market has finally come down.
The recent aggressive moves up in the market had actually been keeping the VIX high. But now the 10-day historical volatility is below 35%, down from 48% a week ago. The April VIX future is down 4.4% to 38.80, while the May and June futures have finally retreated to just below the 40 level.
As I've been saying, this VIX "term structure" remains bullish, as it has since the S&P's 666 low on March 6. As we close out this shortened holiday week, however, caution should be exercised, as volume tends to be light and volatility lower before long weekends.
Many have been using basic technical analysis on the VIX to look for a breakdown through the "triangle" pattern that's formed on the charts. This looks at the bottom of the triangle as the support level of 40. But a chart of the April future -- a tradeable product -- shows a slowly uptrending support line that was solidly broken early yesterday.
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