VIX Flashing Warning Signs? Diving into Short-Term SPX Divergence

In the short term, it appears that 'VIX Inverse' and 'SPX' tend to rise and fall together. However... ( Chart courtesy of Stockcharts.com)

Mean Reverting Assets vs Trending Assets

• Mean reverting assets: These assets tend to fluctuate around their historical average price and eventually return to that mean over time. They are not expected to show sustained upward or downward trends over longer periods.
• Trending assets: These assets exhibit sustained price movements in a specific direction (upward or downward) over time. They may experience temporary pullbacks or corrections, but the overall trend persists.

Therefore, directly comparing the performance of mean-reverting and trending assets over longer timeframes wouldn't be very meaningful. They have different characteristics and respond differently to market forces.

But...

The statement "You don't compare mean reverting to trending assets over longer time periods" is generally true.  

While directly comparing mean-reverting and trending assets over longer timeframes may not be generally productive, understanding their distinct behaviors and potential interactions can still be valuable for specific investment strategies and portfolio management.

Interesting Short-Term Divergence

While comparing a mean-reverting asset like VIX to a trending one like SPX over extended periods might not be ideal, the current chart presents an interesting short-term divergence.^[1] VIX is currently trading at levels unseen since mid-November, yet SPX has recently bounced higher. This "slight" short-term disconnect (Fig. 1) warrants closer examination, especially considering the historical context provided by VIX's recent lows (Fig. 2).

The potential crossover of the MACD indicator, occurring alongside VIX's recent low levels, warrants further observation. (Chart courtesy of Stockcharts.com)

References

1. Market tension rises: VIX in fear