S&P 500 And The VIX Backwardation by Jennifer Thomson, Gavekal Capital

Over the last couple of weeks, we’ve seen the VIX spike above the 3-month VIX– an occurrence that typically coincides with stock market weakness, as we can see in this chart:

VIX Backwardation

For now, investors’ appetite for increased protection remains relatively subdued and well below levels reached during significant market declines in 2009, 2010, and 2011. However. any further inversion (whether in magnitude or duration) would heighten the risk of a more meaningful correction.