Study: VIX's collapse is bullish for VIX and the stock market


VIX (volatility index) has fallen back to where it last was in January 2018, before the stock market’s recent “small correction” began. VIX is now below 11 for the first time in more than 6 months. This means that the stock market’s volatility has subsided.

Here’s what happens next to VIX when VIX falls below 11 for the first time in 6 months.

As you can see, VIX tends to go back up after it becomes this low. That’s because VIX is lower-bound and rarely goes below 10. VIX’s downside risk is low.

Here’s what happens next to the S&P 500 when VIX falls below 11 for the first time in 6 months. (i.e. volatility subsides for the first time in a long time).

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As you can see, when volatility completely subsides for the first time in a long time (i.e. right now), the stock market usually tends to go higher even though VIX goes higher as well.
Here are the historical cases in detail
January 25, 2017

June 6, 2014

October 13, 2006 and July 12, 2005


February 3, 1995

April 15, 1993

Conclusion

When VIX is as low as it is right now, the stock market usually continues to go up. This is because VIX is not this low before bear markets and “big corrections” begin.
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