This VIX Signal Has Happened Just One Other Time

Something strange happened last week as the S&P 500 Index (SPX) gained over 1.5%. The CBOE Volatility Index (VIX) spiked 18%. It's strange because those two indexes typically move in opposite directions. The VIX measures the implied volatility of S&P 500 options and it's often referred to as the market's "fear gauge." Stocks moving higher, like last week, would typically calm the fears of investors -- but according to the VIX, anxiety rose. Uncertainty about the fate of the tax bill might have played a part in the VIX's climb. This week, I'll look at prior instances where stocks moved higher and so did the VIX.

Previous S&P, VIX Divergence Signals

It's relatively rare for the VIX to be up at all when the S&P 500 gains at least 1.5% -- let alone 18% like last week. In fact, going back to 1990, when the VIX began trading, there have only been five other occasions when the SPX gained 1.5% in a week and the VIX was up double-digit percentage points. All of those happened in the 1990s. The only other time the VIX gained more than 18% was in January 1992.

To get more data points and more recent results, I looked at weeks where the stock index gained 1.5% and the VIX was simply positive. Using those parameters, there were 19 occurrences since 2000. The table below shows how the S&P 500 performed afterward.

Overall, the returns are slightly bullish. Oddly, the returns are bullish after two weeks, bearish after a month, and then bullish again three months later. So generally, in these situations, we've seen the momentum continue in the short term, followed by a pullback, and then continued bullishness.

These next tables show how the VIX did going forward. My initial thought about this data was that the VIX would see lower-than-usual returns going forward. My thinking was that whatever spiked the VIX during a bullish market move, would quickly dissipate barring a market pullback. The data supports my theory as the VIX shows declines at all time frames. This would be expected, given the slightly bullish S&P 500 returns from above -- but it's true even at the one-month time frame where the SPX underperforms.

Finally, the charts below show the S&P 500 and the VIX with the individual signals marked.