CBOE Volatility Index Hits a Record High On Thursday

volatility index

Wall Street’s “fear index”, Cboe Volatility Index ($VIX) has been on a run for the top the past couple of days due to rising concerns over interest rates and inflation.

The VIX, which is widely regarded as the best measure of fear in the market, has risen to its highest level in six months, before easing slightly on Thursday.

VIX reflects expectations for volatility in the Standard & Poor’s 500, and it trades inversely to the benchmark approximately 80 percent of the time. It is often termed as the fear index of the stock market because it tends to spike during uncertain times.

The exact cause as to why the markets are selling off isn’t totally known, however, most investors attributing it to increased trade war talks, rising interest rates and inflation. The overall market has been on a strong run the past few months and was due for a pullback.

The Dow Jones industrial average fell more than 200 points, trading below its 200-day moving average, the S&P 500 lost nearly 22 points and was on track to extend its longest losing streak since the 2016 election.

The Nasdaq Composite was down 9 points towards its worst day since the Brexit referendum. VIX is likely to move higher as investors seek other safe havens with the ongoing Wall Street sell-off.

It’s best to watch for the index to surge to a new high and then go down sharply by a few points, closing near lows. That is a clue that the short-term fever might be broken. Typically when we see spikes like this in the VIX and markets sell off, you can start shopping for long positions in your favorite stocks or just taking a longer term position in indices like the $SPY or $QQQ.