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Volatility Index Hiding Bearish Tone Of Market at Trader’s Narrative





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The first time we looked at the Credit Suisse Fear Barometer, it didn’t look like it had anything useful to offer. But using it in combination with its competitor, the VIX index, it may yield surprising insight into options sentiment and the stock market.

The VIX has declined from its stratospheric highs to reach close to its long term average of 20. That may suggest that there is little fear in the market. But that isn’t really accurate because right now traders are willing to pay more for put options than for (equivalent) call options. We can tell that because the CSFB is higher.

The last time we had a CS Fear Barometer rising while the CBOE volatility index was falling was in early May 2008 (shown above) - just before the S&P 500 rolled over into another waterfall decline.

volatility VIX CSFB fear index compared July 2009
Source: Battle Of The Fear Indexes

That is just one instance but the others also provide the same general idea. The S&P 500 has a very tough time on average, going up when the VIX has fallen and the CSFB has gone up.

So it seems the ugly duckling of an indicator has suddenly become a swan. When paired with the VIX, the CSFB seems to unfold even more meaning for the stock market.

Check out my original review of SentimenTrader.com to see why I highly recommend Jason’s insights. As you can see from the above analysis, he’s well worth your money.

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4 Responses to “Volatility Index Hiding Bearish Tone Of Market”  

  1. 1 MAVERICK

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    Hello Babak,

    Where can I get historical data on the Credit Suisse Fear Barometer? It is available on stockcharts.com?

    Thanks,
    Maverick

  2. 2 Babak

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    Maverick, either bloomberg or CS themselves afaik.

  3. 3 MAVERICK

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    Babak,

    Could you provide the link to the data since I was not able to locate it on bloomberg or CS?

    Thanks,
    Maverick

  4. 4 Babak

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    Mavrick, the data is only available from Credit Suisse or Bloomberg Professional (terminal).

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