The fear in the markets has been at its highest level since 1986.
Analyzing the #VIX (CBOE volatility index – derived from the price of options in the S&P 500 index) or “fear index” one can see that it has been at its peak since 1986, overcoming previous financial crises (1987-88-2001-2007/2008). The coronavirus therefore frightens the financial markets just as past crises have done.
What have been the main financial crises (more or less recent since 1998)? Let’s see two numbers:
– 1998 (Asia crisis)
– 2001 (Tech bubble)
– 2007/2008 (Subprime)
– 2011 ( Debt crisis).
From 1998 to 2011, the CBOE volatility index, derived from the S&P 500 index option price, generated an average increase of around 210%, taking an average of around 73 days to complete the rise (from a minimum to a maximum). To date, the Vix has risen by 69 days and +400%.
From 1998 to 2011, copper generated an average decrease of between 25% and 30%, taking an average of 135 days to complete the descent (from a maximum to a minimum). To date, copper marks a decrease of 69 days and -15%.
The time ratio between Vix and copper is 1.85 days (i.e. the ratio between the number of days Vix rises and copper falls).
Assuming that Vix scored its top, thus setting this ratio to 69 days, there are still 59 days of potential copper weakness (May 9, 2020), with support band in the $5000 area.