Don't Ignore This Chart!

What Did the VIX Know and When Did It Know It?

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The VIX is the Volatility Index published by the Chicago Board Options Exchange (CBOE).  It measures the "implied volatility" of a hypothetical SPX option created from a weighted average of several actual SPX options.  (For all the gory details, check out our ChartSchool article on the VIX.)  Typically, the VIX is interpreted as an "inverse" market indicator - i.e., down is bullish and up is bearish.  In the chart above, I've plotted the reciprocal of the VIX with the ratio symbol "$ONE:$VIX" (Note: $ONE is always equal to, you guessed it, one.)  That allows me to then compare it to a chart of the actual market.  Looking back at the past couple of years, you can see that the VIX did an uncanny job of indicating "trouble ahead" for stocks.  Just like when it started moving up before the market did in 2002, the VIX started moving down in 2007 and the market followed dramatically in 2008.  Definitely, don't ignore this chart!

Chip Anderson
About the author: is the founder and president of He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at, and provides updates about new features or additions to the site. Learn More
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