Start of 5% Pullback? VIX Curve Signals Stocks May Recover Soon – Bloomberg

Panic selling may be creeping up in the stock market, so much so that an options-based indicator is flashing a buy signal.

The Cboe Volatility Index, a gauge of S&P 500 Index options costs, has surged more than 30 percent over two days, pushing its spot price above that of its two-month futures for the first time since August. Such an inverted curve has occurred four times in the past year and all coincided with market bottoms.

Traders are paying up for near-term protection, remaining relatively sanguine over the trajectory for the next months, as the S&P 500 is suffering its first back-to-back declines of more than 0.5 percent since November 2016.

While inverted VIX curves in the past year have preceded stock gains of more than 2 percent on average in the following month, that’s bad news for investors who have been waiting for a deeper dip to buy equities. Strategists from Goldman Sachs to Stifel have called for a 5 percent correction after the market has gone longer than ever without a pullback of that size.

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