SVXY - The VIX is in a bubble which bodes well for the S&P - J.P. Morgan's Kolanovic

The VIX (VIX) -0.7% is in a bubble based on historical data and a decline should be expected, along with a corresponding rise in the S&P 500 (SPY) +0.9%, Marko Kolanovic, global head of macro quantitative and derivatives strategy at J.P. Morgan Securities, writes in a note."The VIX is now disconnected to underlying short term S&P 500 realized volatility, indicating a bubble of fear and demand from investors looking to hedge or profit from a hypothetical market selloff," Kolanovic says.The spread between the VIX and two-week S&P 500 realized volatility is about 18 points, which is in the 99.6th historical percentile over the last 30 years.With a spread above the 90th percentile, the VIX fell six points (79% of times) and the market rallied 8% (88% of times), he adds.With the VIX at a near-record premium to actual equity volatility, at about 400% to 500% above fair value, "we think selling the 'VIX bubble'

For further details see:

The VIX is in a bubble, which bodes well for the S&P - J.P. Morgan's Kolanovic