Bank of America is waiting for a new U.S. stock crash and a March low test
History shows a very low probability that the S&P 500 will not test the lows of March 23, given the depth of its recent collapse (-34%) and an continuing recession, writes a team of experts on the derivatives market of Bank of America.
The CBOE VIX volatility index peaked on March 16 and has been declining rapidly since then amid rising stock markets. However, long-distance futures on VIX are growing despite the decline in the index itself and are currently above the values of March 16, BofA experts say.
In their view, this means that the volatility may remain high for a long time, as well as indicating an increase in system risk. The fact that the index VIX and six-month futures on it remain above 30 create the conditions for a new collapse of the stock market in the medium term, the bank notes.
Bank of America experts have studied all periods since 1990, when the VIX index was above 30. In this time period, they found 105 sessions when VIX closed above the same mark and 6 months later. Interestingly, out of 105 sessions only 3 were outside the bear market (twice in 1998 and once in May 2009).
In other words, only three times in the last thirty years have the VIX Index risen above 30 and then did the same 6 months later.