The market’s so-called fear index has gathered momentum ahead of a referendum that could help determine the U.K.’s continued membership in the European Union.
The vote scheduled for Thursday has become one of the financial world’s sharpest points of anxiety. The main concern is that if Britons opt to exit the EU, markets world-wide will be roiled. An online survey by Opinium on Wednesday implied that the odds of a “Brexit” are the about the statistical equivalent of a coin toss.
That uncertainty has put pressure on the S&P 500 index
and the Dow Jones Industrial Average
which relinquished morning gains on Wednesday to close near session lows. As a result, the CBOE Volatility Index
or VIX, which tracks S&P 500 options prices, climbed above 21. That’s up more than 9% on the day.
The VIX is used in financial markets as a measure of fear or volatility. And a climb into the 20s suggests that traders are scurrying to place derivative bets to limit losses if the world turns topsy- turvy in the event Brexit wins the day.
“The Brexit has reached a fever pitch and you can see that,” said Katie Stockton, chief technical strategist at BTIG LLC.
The VIX has been gaining slowly over the past two sessions but hasn’t seen this big of a daily rise since a 23% surge on June 13, which capped a six-session ascent, according to FactSet data. Another measure of volatility, the exchange-traded VelocityShares Daily 2x VIX Short Term ETN
was up more than 6% Wednesday.
Stockton said that the VIX’s moves on Wednesday were particularly notable due to its moves over the past several sessions. “When you look at [the VIX] relative to this monthly low it’s seen a big breakout above its 200-day [moving average],” she said, referring to the VIX’s gains ending June 13.
Stockton is predicting that the VIX hits 28 as fear intensifies. “That means it’s going to get worse before it gets better for the S&P 500,” she said.