The high index of fear in the stock market does not mean an inevitable decline

The high fluctuations in the market mean a decline in stocks, right? error. I acknowledge that I am with every jump in the VIX index – that is, the Chicago Council’s fluctuations index – I am preparing for a decline in the stock market. It seems to be the anxiety that investors showed after the rise of the index after President Donald Trump announced the increase in customs duties last month that I am not the only one who thinks so. The “Fix” index, which measures the expectations of the “Standard & Poor’s 500” index for the next thirty days, achieved about three times the four -day trading, followed by Trump’s announcement of the White House on April 2. The index was closed at 52 points on April 8, the third highest level it has reached since the institution in 1998 and the Corona pandemic. Also read: US stocks have wiped out the losses of today before the profits of technology companies were issued ‘Fear Index’, as it appears later, investors were concerned about an imminent stock market collapse in their place. The market dropped at the lowest level on April 8, the same day as the “Fix” index reached its peak. From then to May 5, the Standard & Poor’s 500 index rose 13%, which is a big jump in a short time. It is true that in its reference to higher fluctuations than usual, the ‘fix’ index in its reference to higher fluctuations, that is, more serious movements than usual in stock prices. But what has violated the expectations of many investors is that these movements have come in the form of profits, no losses. This is not surprising, as the indicators of volatility, such as “fix”, the severity of price changes, do not measure their direction. High volatility simply large movements, whether up or down, just as low fluctuation indicates limited changes in any direction. Therefore, when the “Fix” index rises, the big profits are just as much as the sharp, which the market has reminded of the investors in recent weeks. Despite my awareness of this fact, I do not know why I still connect the high “fix” index to the market. Perhaps to influence the fatal title in which the index is prevented, that is, the ‘fear index’, referring to the panic that investors have at each jump in the Fix index. Also read: A new buying wave that threatens US shares in May. Are the indicators? Unreliable to predict the negative connection of the market between the “fix” index and the market is often undesirable. It is true that it is a good tool to monitor the fluctuations in the short term, but its reliability has not been proven as an indication of the prediction of the market. Since 1990, “Fix” has been related to the fluctuations of the “Standard & Poor’s 500” index during the next thirty days, according to the measurement of the annual normative deviation (0.69). But the relationship between him and the actual price performance of the index during the same period was almost not existence (0.1). In fact, relying on the “fix” index to make investment decisions often make a loss -bet, because the market tends to climb most of the time, regardless of the indicator level. The daily values ​​of “fix” have been dropped since 1990 and divided into five equal categories, and the “Standard & Poor’s 500” index has been found to rise to the highest category in 68% of cases during the next thirty days, that is, in the periods of the “Fix” index that reached its peak. It is noteworthy that this percentage was almost identical to what the index recorded in the lowest category, and that it was nearby in the three central groups. Given the weak mutual connection between the “Fix” index and the direction of the market, it may be more appropriate to launch the “index of uncertainty” on it. Lack of certainty is the basic engine of fluctuations in most cases, and like fluctuations, it does not necessarily mean a specific result. The periods of uncertainty may end in a catastrophic time, as happened during the financial crisis, or it can pass without harming, as happened after the fear of the United States’s possibility behind paying its debt in 2011. For this reason, the markets often continue their upward path, regardless of the level of the “fix” index. Also read: Hedging boxes change the trading strategy to adapt to the market fluctuations. The continuation of uncertainty with this is important. It is important to distinguish between the level of the “Fix” index and the changes that occur. The index in the height process is strongly related to the decline in the market, and vice versa, (where the correlation coefficient between simultaneous changes during a period of 30 days of both “Fix” and the “Standard & Poor’s 500” index is about -0.68). But investors cannot accurately predict the direction of “fix”, just as they cannot expect the market direction. Often, market decline has already occurred by the time when “fix” became high. That’s exactly what happened last month. The Standard & Poor’s 500 index fell sharply in collaboration with the increase in the “Fix” index. By the time the “fix” level was alarming for worrying, the market has reached the bottom. This does not mean that the subsequent recovery in the direction of the market was inevitable, but on the basis of the historically fixing record, the possibilities would probably have recovered. Where do we stand today? The “Fix” index is about 24 points, less than half the level it achieved on April 8, but it is still higher than the long -term average of about 19 points. It is likely that we are heading for more fluctuations, which are reflected in the statements of an increasing number of managers, who say that continuing the uncertainty about customs duties is difficult to develop and predict the following. It is easy to understand why the “fix” index is prepared for exceptional movements in the market. Trump in itself has imposed a major gambling domination, which can lead to great consequences. If these fees eventually lead to agreements to shrink commercial barriers before US businesses, they will be very positive on the market. And if it leads to a long -term trade war, it will tax the businesses, it will not be in the interests of the shares. This “fix” uncertainty can lead to a longer high levels than investors want. But it should not be assumed that this means that the market will fall.