E-Wave for the S&P 500 Index

[RCKS]

June 15, 2017

When the normally inverse correlation between the VIX Index and the SP500 gets crazy, if offers us a great message. That is the point behind this week’s chart, which is based on a great observation by Jesse Felder of www.TheFelderReport.com.

Jesse first wrote about it in a Tweet here back on March 3, 2017, and that same day it was featured in a MarketWatch article. I did my own investigation, which revealed that this is indeed a really cool insight.

What Jesse did, and what I have replicated here, is to calculate a 10-day Pearson’s Correlation Coefficient between the VIX and the SP500. You can do this incredibly easy in any spreadsheet program, or even more easily as Jesse did at www.stockcharts.com. Just call up a chart of $SPX, choose as your indicator “Correlation” from the list, and set “$VIX,10” in the parameters window. It is that easy. Then you can adjust the period under observation as you might wish.

What we see is that most of the time, the correlation hangs around down near -1.00, meaning that they have a strongly negative correlation. In other words, if the SP500 goes up, the VIX usually goes down, and vice versa. That’s what is normal. But the instances of abnormal behavior contain the really interesting information.

Here is a regression chart showing the one-day SP500 change versus the one-day VIX change:

Chart In Focus: by Tom McClellan
Correlation Between VIX and SP500

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