9 Minute Read

Tackle Today: VIX Spike for the Win

September 23, 2021

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Fading Fear will Work Until it Doesn’t


Stocks are jumping this morning in a continuation of the rebound. Yesterday’s Fed announcements delivered the goods, and traders are back to the business of buying. If you were betting this selloff was the long-awaited trend killer, the big kahuna, the much-needed comeuppance for fattened pigs and starry-eyed holders – well, you were wrong.

I don’t blame traders for getting defensive with Monday’s nasty drop. It made the S&P 500 look the worst I’ve seen all year long (given how far below the 50-day moving average we probed). But, once again, the power of the trend reigned supreme. Dip buyers were rewarded for the umpteenth time, and sticking with what’s been working ultimately prevailed.

Bulls who stuck to their guns and avoided panicking have now been made whole. Maybe we feint lower again; maybe we don’t. All I know is this in a long line of episodes proving that those who keep their wits about them when corrections strike are best equipped to brave the drama and come out the other side recouping losses the quickest.

As for today’s title, well, look at the VIX chart below. Once again, betting that a VIX spike is temporary has proven wise.


Chart of the Day

Mr. VIX Says the Crisis is Over for Now

Source: Bloomberg

The Bear Market Survival Guide features a trade idea called “Fade the Fear.” It involves betting that VIX spikes are transitory. This week’s rapid-fire mean reversion is the ideal outcome for those who stepped into the panic on Monday and sold options.   

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