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The S&P 500 Index could be headed for a drop of more than 20 percent because of a coming spike in volatility, according to notable chart analyst, Citgroup’s Tom Fitzpatrick.
The firm’s chief technical analyst warned that the CBOE Volatility Index, which measures the market’s expectations of future volatility, was primed for a significant pop similar to ones that have sent the S&P 500 down 27 percent, on average, over the last five years.“Every bounce off this VIX support line has been followed by an aggressive correction lower in the S&P in the months that followed,” warned Fitzpatrick, in a note to clients last week. “Such a dynamic IF the trend high for 2012 is already in place would suggest a fall to 1,038 over anything from 5 to 17 months.”
The so-called VIX shot above the 21 level Monday after trending as low as 14 in late March, which was just a few days before the S&P 500 reached its high for 2012. The Chicago Board Options Exchange Volatility Index essentially measures the prices of callsversus putsbeing purchased on the S&P 500 and so a higher index means investor fear is rising.
And Fitzpatrick is not alone.
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