Comparison of the VIX From 2007 Peak to Present

Mar 23, 2010: 1:10 PM CST

This is a third in an unexpected series of posts on the similarities/differences between the October 2007 stock market peak and the current rally to new recovery highs.

Thank you to another astute reader who mentioned that the VIX – the CBOE Volatility Index – is at the same level it was at the October 2007 peak.

If you ask me, these comparisons have moved from “Hmm, that’s interesting” to “Ok, this is getting weird.”

Let’s take a look at the Volatility Index (VIX) during the 2007 market peak and present … and yes, they’re at the same level.

First, the VIX at the October 2007 Stock Market Peak:

The price pattern of the VIX is of less importance than the absolute value, which hit 16 when the Stock Market peaked on October 11, 2007.

Keep in mind that we were in a bull market at that time, which explains why the VIX was at the 12 level prior to the initial sell-off.  That meant there was less ‘fear’ in the market.

We’ve been in a bull market (arguably) since the March 2009 low (passed the one-year anniversary this month) so the VIX has been falling in accordance with the rising stock market.

In both cases, the VIX ballooned up as stocks took a tumble initially, only to recover to new highs.  Granted, the current spike took the VIX to a lower level than that of 2007.

Present VIX (as of March 23, 2010):

This shows the complancency that has been underlying the recent (non-stop) market rally, with the VIX back at the 16 level (as of last week).

Why is 16 familiar?

That’s exactly what the VIX hit in 2007 as the market peaked.

Here’s a weekly view showing the pure price (value) comparisons.

Weekly View of the VIX from 2007 to present:

We see how the VIX Index reacted through the entirety of the 2008 Bear Market, with the peak being 90 as price careened off a cliff in October, to make two more bottoms into the March 2009 lows (with ‘fear’ treading lower each time).

We’re now officially at the levels not seen since May 2008’s intermediate top and then before that, back to the October 2007 peak.

I’m certainly not a doomsday prophet on the economy or the market – personally I’m an intraday trader and am concerned with the ‘next likely swing’ in price as it relates to the intraday frames.

However, I love watching charts of the ‘bigger picture’ and finding interesting developments, specifically watching historical patterns repeat into the present, which gives a potential ‘roadmap’ for the future.

Even if you don’t use it in that matter, it’s still very interesting nonetheless.

Thank you to all reader comments and emails (and tweets and links) on this fascinating ‘coincidence’ in the stock market!

Be sure to follow the thread in the prior two updates:

Original:  Strange Similarities Between the 2007 Peak and Current Rally High

Follow-up:  Breadth Comparison Between 2007 Peak and Current Rally

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

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Comments
  • hfguy

    I am not at all convinced. The VIX is a relative indicator - not an absolute one. We can also observe that the VIX is at the same level it was in late 2003 yet the market rose 50% after that.

  • monicadern

    Corey - I read your commentary frequently and appreciate the recent comparisons you have illustrated between today's market and the 2007 collapse. I guess we will have to wait and see if this plays out.

  • ashraf, CMT

    Wont you want to wait till the trend in VIX changes first? because in Jun-July 07 VIX made higher highs and lows

  • John P. Hussman, Ph.D of Hussman Funds writes: "With the overvalued, overbought conditions of October now compounded by rising yield pressures and overbullish sentiment on a variety of measures (investment advisors are again down to just 21.3% bears), we remain defensively positioned here.

    While investors looking at the 2007 highs undoubtedly observe a significant amount of apparent 'room to recover' for stocks, it is extremely important to recognize that those 2007 valuations were what one might call 'Bubble Part II', and priced stocks for terribly poor long-term returns.

    Unless investors wish to repeat the experience, it is worth noting that stocks are already overvalued beyond nearly every pre-bubble norm. Indeed, outside of the bubble years from the late 1990's through 2007, the S&P 500 has never been priced to achieve a poorer long-term return than it is now."

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