Looking at the close of the CBOE Volatility Index (VIX.X) at 13.02 on Monday, Oct. 24, and comparing it with current levels at about 20.18, shows that volatility has increased dramatically in a little more than a week, while the decrease in the stock market has been muted.
Said differently, a drop in the S&P 500 to 2,100 from 2,151.33 doesn't merit a 50% increase in the VIX.
To what can we attribute this increase in volatility?
Those who guess Federal Bureau of Investigation Director James Comey, an email investigation and what appears to be a possible reversal of outcome from a Hillary Clinton landslide to a potential Donald Trump victory are correct.
The VIX is usually reactionary, which can be characterized as the dog wagging the tale and follows what the S&P 500 is doing. Right now, however, it is anticipatory, with the tail wagging the dog, and that tail is that nobody knows what to expect on Election Day.
Here is what volatility is saying about next week.
We thought Democratic presidential candidate Clinton was going to win as of last week. Now we aren't so sure.
We think the market will go down if Republican candidate Trump wins, but we don't think it will go down as much as others think it would or we would be selling more right now. But Clinton still has a good chance of winning, and we don't want to be caught out of the market if there is a subsequent rally like the one in June after the Brexit vote in the U.K.
Is the market saying anything else? The answer is yes.