The VIX Is Telling Us to Expect Some Action

Imagine if Sylvester Stallone and Arnold Schwarzenegger starred in a remake of the 1981 film, My Dinner with Andre.

That is the stock market these days. The elements are there for an action-packed blockbuster. But instead, it’s the most boring film of all time.

Over the past week, we’ve had tariff talks, the release of key economic reports like CPI and PPI, options expiration day, talk of the U.S. government buying into public companies, President Trump meeting with Russian President Putin, European leaders and Ukrainian President Zelensky visiting the White House, and on and on.

Yet, the stock market has gone nowhere.

On Monday, for example, the S&P 500 traded eight points on either side of unchanged. It finished the session down 0.01%. And, over the past week, the index has stayed inside a 30-point trading range.

Watching the market has been like watching two guys talk about coffee, electric blankets, and the nature of theater… for a week.

This lack of activity has pushed the Volatility Index (VIX) towards its lowest level for 2025. Take a look…

Of course, the one thing we know for sure about volatility is that low levels of volatility are always followed by high levels, and vice versa. We discussed that concept back in July – the last time the VIX was trading near its low for the year.

One week later, the VIX was trading 33% higher.

Today, the VIX looks just like it did one month ago. But, while the VIX has declined to a lower low, notice how all the momentum indicators at the bottom of the chart are making higher lows.

This “positive divergence” is often an early warning sign of an impending rally. In other words, there’s a good chance the VIX will spike higher in the days ahead.

It may only be a temporary spike – like the one in late July. Or, we could see a more significant and sustained increase in volatility – like what happened from mid-February through mid-March.

We can’t know ahead of time exactly how this setup will play out.

Either way, though, given the recent lethargic action in the broad stock market, there’s a good chance most investors have been lulled into a sense of complacency. They’re not looking for, nor are they prepared for, a sudden spike in volatility.

After several days of “go-nowhere” action, there’s a lot of energy built up in the stock market to fuel a larger move, one way or the other.

The VIX is telling us we should expect that move to happen soon.

Best regards and good trading,

Jeff Clark
Editor, Market Minute