In A Peculiar Move, Volatility Rises Same Time As Stocks Rally On Monday: Here's What Happened

Zinger Key Points
  • Traders are looking forward to seeing off Wednesday's Fed decision without any major pullbacks.
  • A less hawkish Fed is the key to kickstart the Santa Claus rally, typical of the year-end.

The major averages closed uniformly higher on Monday, reversing from the previous week’s losses. The buying spree may partly be attributed to profit-taking as some of the stocks got cheaper after a near-term uptrend that topped out in late November.

What Happened: In an unusual move, even as stocks rallied the CBOE Volatility Index, aka VIX, also advanced.

The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund that tracks the performance of the broader S&P 500 Index, ended Monday’s session up 1.44%. Incidentally, the VIX advanced 9.5% during the session.

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The VIX typically shares an inverse correlation with the S&P 500 Index and it is for this very reason the former is called the fear gauge. vix-spy.png

Source: Bloomberg & CBOE

Analyzing The Anomaly: Commenting on the development, market strategist Charlie Bilello said it is rare to see volatility jump this much, with stocks closing higher.

The graphics shared by him showed 20 instances since 1990 when S&P 500 advanced along with spikes in VIX. Among these instances, only five times the gains of the S&P 500 Index were appreciable — Monday was one such day.

Traders could be pricing in higher volatility on Tuesday and Wednesday, when the November consumer price inflation report and the Fed decision, respectively are due, he added.

Price Action: The SPY closed Monday’s session 1.44% higher, at $398.95, according to Benzinga Pro data.

Read Next: Cramer Says Big Macro Data, Fed Meetings Obscure Real Opportunities, Wants Investors To Keep 'Eyes Open'

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Posted In: Analyst ColorNewsFederal ReserveMarketsAnalyst RatingsTrading IdeasCBOE Volatility IndexCharlie Bilelloconsumer price inflationS&P 500 IndexSanta Claus RallyStock Rally
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