Unusual Recent Moves with Stocks Oil and VIX

Sep 17, 2010: 1:47 PM CST

This week has been a little strange toward the end in terms of standard market relationships, specifically with those of equities (seen by the S&P 500) and Oil, and then equities and the Volatility Index (VIX).

Generally, oil moves in the same direction as stocks while the Volatility Index moves opposite stocks, but over the last few days, that relationship has been strained intraday.

Let’s take a look, first starting with Oil and the S&P 500.

For reference, StockCharts does not show Crude Oil prices ($WTIC) intraday, so I’m resorting to comparing the USO Oil ETF with the SPY (S&P 500 ETF).

The USO fund is colored black (like oil) and scaled on the left side, while the SPY is red and scaled on the right side.

As you see, and as you’ve probably observed astutely in the past, oil and stocks tend to move together as they’re driven by expectations on broader (even global) economic expansion or contraction.

This was the case until a separation and relationship breakdown began on September 14th that continues to this day.

Oil (futures) fell from the $78 per barrel level to the $73 level this morning, and you can see that sharp multi-day (straight down) fall on the chart of the USO.

And what did the SPY (stocks) do?  Held up sideways.  Perhaps that’s due to Options Expiration (today) or other stock-related factors (better than expected technology reports this morning), but whatever the reason, it’s strange from an inter-market perspective.

And if that wasn’t enough, we have another solid inverse relationship temporarily breaking down – that of the S&P 500 and the VIX (Volatility Index).

This time we can compare the S&P 500 Index (red – right) to the VIX (blue – left) intraday.

Given that the Volatility Index is also called the “Fear Index,” it tends to move inverse to equities.

That’s been the case in early September as the blue and red lines criss-crossed, but a strange thing happened over the last few days.

The VIX spiked sharply higher on the morning of September 15th when stocks really didn’t move that much.

Stocks were held-up at the prior 1,117 support line but the VIX still surged noticeably higher.

In fact, the VIX rose intraday while stocks bounce higher off support (highlighted) which isn’t usual.

Since September 15th, the relationship returned (mostly) as stocks traded sideways while the VIX trailed lower, with the exception of another solid up-spike on this morning’s sell-off.

The fact is that stocks have remained flat, peaking at the 1,130 level while the VIX remains higher than its September 14th bottom of 21.  The index now trades just under 22.0.

Strange?  Yes.

It’s definitely something to keep watching closely as the Options Expiration concludes and things – perhaps – return to normal.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

4 Comments

4 Responses to “Unusual Recent Moves with Stocks Oil and VIX”

  1. Ryan Mallory Says:

    Great article – thanks for pointing out the divergences

  2. dumbpainter Says:

    watch the money…big fast money, not the dumb slow invested stuff.

  3. Les Scott Says:

    Good stuff… the market is acting very strange and no one ever knows for sure and always makes sense in hindsight etc. but this market has rallied on very little and no one understands why. We will know shortly as it all unwinds but I'm really hanging out on the short side and making a big bet. Watch the money is right but seems mkt's index is held up by a few names and everything is just sideways and something needs to give…

  4. WatchingOil Says:

    Hi Corey,

    If we can get USO under or around 31.5 this week, I'm looking for the buy on daily charts.
    As well, if that bottom holds, look for a buy on weekly charts next weekend.
    I think you call that 'confluence from multiple timeframes' , with daily and weekly charts displaying positive divergence using MACD on USO prices….

    This week is critical , highly critical, for oil, and those long the energy sector. Watching for money to begin leaving gold and bonds and POURING in CRB assets , ie, food, oil.

    (In re to this message – I def wouldn't short SPX yet, not as of Friday's close… and honestly it's hard for me to go long VXX , as of the Fri close….)