Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / What the VIX at 16 Tells Dip Buyers Right Now
Transcript
- Lucas: The VIX closed yesterday at 16.59. Down twelve percent in five days. And if you are a dip buyer, that number should make you pause — not sprint in. Luna: Because 16 feels calm, but history says calm is exactly when people get burned. Lucas: Right. The VIX at 16 is not panic territory. It's not even fear territory. It's basically the long-term average. But here's the problem — when the VIX is that low, the market has already priced in a lot of good news. Luna: So the dip that looks like a buying opportunity might actually be the start of something worse. Lucas: Exactly. Let me give you two examples. December 2018 — the market had a sharp selloff in October, then bounced. By early December, the VIX was around 16 again. People thought the coast was clear. Then the Fed hiked in December, and the S&P dropped another 10 percent in two weeks. Luna: The trap was the VIX lulling everyone into thinking the volatility was over. Lucas: Second example: February 2020. The VIX spent most of January at 12 to 14. The first COVID headlines hit late January, the VIX crept to 15, then 16. If you bought the dip at VIX 16, you got crushed when it spiked to 82 in March. Luna: So what's different now? The VIX is 16, but the VVIX — the volatility of volatility — is at 89. That's not high, but it's not rock bottom either. Lucas: Right. VVIX at 89 suggests options market makers still see a non-trivial chance of a volatility spike. And look at the yield curve — the 10-year minus 2-year spread is now 31 basis points. That's up from 30 the day before, but it's still steepening. A steepening curve usually means the market expects growth, but it can also mean the market expects inflation to stay sticky. Luna: And sticky inflation keeps the Fed from cutting, which is the opposite of what dip buyers want. Lucas: Exactly. So the current setup — VIX at 16, curve steepening, VVIX at 89 — it's not screaming 'buy the dip.' It's more of a 'wait for a catalyst' signal. Luna: But what about the tech-heavy Nasdaq? It's up 2.7 percent in five days. That's a big rally. Doesn't that suggest dip buyers are already active? Lucas: It does. And that's part of the concern. The Nasdaq has been leading the charge, but the Russell 2000 is only up 0.2 percent in five days. Small caps are barely moving. That divergence tells me the rally is narrow — it's big tech and AI names, not the broad market. Luna: So the dip buyers are concentrating in the same few sectors that already had the biggest run-ups. Lucas: Which is exactly what happened in late 2021 before the 2022 correction. Everyone crowded into mega-cap tech because it felt safe, then the Fed started hiking and those stocks got cut in half. Luna: That's a sobering comparison. But let's talk about what a smarter dip-buying strategy looks like right now. Lucas: I think you wait for either the VIX to spike above 25, which signals capitulation, or you wait for a clear macro catalyst — like a Fed pivot signal or a meaningful drop in inflation data. Buying when the VIX is 16 is buying when the market is still complacent. Luna: And historically, buying when the VIX is below 20 has a much lower probability of a quick gain than buying above 30. Lucas: There's actually a good study from Robeco — they looked at VIX entry points over 30 years. Buying the S&P when the VIX was above 30 produced an average 12-month return of 18 percent. Buying when the VIX was below 20 produced around 6 percent. The risk-reward is night and day. Luna: So the patient money wins again. But patience is hard when the market is hitting new highs and you feel like you're missing out. Lucas: That's the behavioral challenge. And speaking of that — one thing we try to do on this show is help you think clearly without the noise. We don't have ads, we don't have sponsors pushing products at you. That's intentional. If you find that approach valuable, and you want to support us keeping it that way, you can find us at buy me a coffee dot com slash fexingo. Totally optional, but it helps us stay independent. Luna: Yeah, it's a small gesture that goes a long way toward keeping the conversation honest. Lucas: Alright — back to the VIX. So what would change the calculus? Luna: A VIX spike above 25, or maybe a big miss in jobs data or CPI. Lucas: Exactly. The June CPI report comes out next week. If it shows inflation ticking down more than expected, the bond market might rally, yields drop, and the VIX could actually go lower. That would be a green light for dip buyers. But if inflation stays sticky, the VIX could pop back above 20. Luna: So for now, it's a wait and see environment. But there's one more data point I want to highlight — the VIX futures curve is in contango, but not steeply. The front-month is 16.50, the next month is 17.00. That's a very flat curve. Lucas: Flat contango means the market is pricing in a modest increase in volatility over the next month, but nothing dramatic. That's actually consistent with the VVIX at 89 — moderate uncertainty, not panic. Luna: So the options market is saying 'something could happen, but we don't know what.' Lucas: Which is another reason to be cautious. When the market is uncertain, the best trade is often to do nothing. And for retail investors, that's the hardest trade of all. Luna: So to summarize: VIX at 16 is not a buy signal. It's a 'wait for a better entry' signal. The narrow rally, the flat VIX curve, the steepening yield curve — all point to caution. Lucas: And the most important thing is to have a plan. Know what VIX level you'll buy at, what catalyst you're waiting for, and stick to it. Don't let the daily noise push you into a trade you'll regret. Luna: That's a good note to end on. Next week we'll dig into the CPI report and what it means for the dip-buying playbook. Lucas: Looking forward to it. Until then, keep your powder dry.