Market Cap per Unit Volatility
The chart shows how many dollars of market cap exist per single unit of volatility. Let's call it market "fragility". With the higher number being more "fragile". This is not just the same percentage price swing causing a greater dollar movement because the market cap is higher. (Not 10% of 100 vs 10% of 1000.) Compare the 2000 and 2008 crashes. The market cap at each top was approximately the same, but market cap per unit volatility was much higher in the 2008 crash. The market was more "fragile" in 2008.
Also notice how the peak in the market keeps moving right of the peak in "fragility". (Orange arrows are peaks in the market while red arrows are peaks in "fragility".) As the distance between the two increases, notice the angle of the sell off also steepens. Each purple arch skews more to the right. If this relationship holds, we should see a major sell off in the next 3 months.
By removing the SPX overlay and selecting Regular for the vertical scale, you can see that the least fragile market (local market bottom) is a ratio of about 25:1. Were the VIX to spike up to 85, the SPX would have to be at 2125 to achieve this ratio. But, if the lower trend line of least "fragility" is reached we're looking at a 5:1 SPX:VIX ratio. 5 times the highest VIX ever (96.4) is a target SPX of 482! That's an 87% correction in SPX!
Maybe the lower trend line isn't reached. Maybe the VIX goes higher than 100. I don't know the future. I just hope it isn't this.
Also notice how the peak in the market keeps moving right of the peak in "fragility". (Orange arrows are peaks in the market while red arrows are peaks in "fragility".) As the distance between the two increases, notice the angle of the sell off also steepens. Each purple arch skews more to the right. If this relationship holds, we should see a major sell off in the next 3 months.
By removing the SPX overlay and selecting Regular for the vertical scale, you can see that the least fragile market (local market bottom) is a ratio of about 25:1. Were the VIX to spike up to 85, the SPX would have to be at 2125 to achieve this ratio. But, if the lower trend line of least "fragility" is reached we're looking at a 5:1 SPX:VIX ratio. 5 times the highest VIX ever (96.4) is a target SPX of 482! That's an 87% correction in SPX!
Maybe the lower trend line isn't reached. Maybe the VIX goes higher than 100. I don't know the future. I just hope it isn't this.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.