Doug Kass of Seabreeze Partners called attention on Tuesday to a nerve-wracking chart. It compares the Standard & Poor 500 index with the VIX index, which shows a striking parallel to low VIX and an imminently steep decline in the markets.
The VIX indexes the volatility of all of the stocks in the S&P 500. That means if the S&P 500 is highly volatile, the VIX index climbs. VIX values above 30 typically reflect great volatility, while values below 20 reflect calmer markets.
You’ve probably guessed where this is heading.. The VIX is at a multiyear low of 13.45. And according to this chart, we can expect a heavy drop-off any day now.
This is what the VIX and SPX (the S&P 500) looked like the last five times the VIX “bottomed out”
According to Kass:
Typically, the decline in the markets, off of a low VIX is quick and relatively severe. On average the S&P dropped by about 10% (and took about two months to correct), with the smallest decline of 6% in February 2011 and the largest drop of 19% in July 2011. (If we go further back in history, the same relationships hold; complacent markets are almost always associated with market peaks and vice versa.)
Business Section: Investing Ideas
If you believe in this chart’s uncanny predictive abilities, you’re probably wondering what you can do to protect your portfolio.
With this in mind we ran a screen to see which stocks perform well in times of high volatility, with a high positive correlation to the VIX index. That means if the S&P 500 is highly volatile, the VIX index climbs, and these correlated stocks tend to climb with it. Put another way, this chart suggests the VIX is about to change from a very low value to a higher one. The stocks below tend to rise (increase in share value) along with the VIX value.
We took only the names with correlations of 0.65 and higher to the VIX index.
Lastly, we narrowed our selection by looking for significant short covering activity month-over-month. Short sellers, who benefit when share prices fall, clearly think these names are starting to show more promise.
Use this list as a starting point for your own analysis. Do you think these names can hedge against a drop in the market?
Use the Turbo Chart to Compare the Performance of the First Two Companies in the List to the S&P 500:
1. Cell Therapeutics, Inc. (CTIC, Earnings, Analysts, Financials): Engages in the development, acquisition, and commercialization of drugs for the treatment of cancer. Market cap at $113.36M, most recent closing price at $0.40. Correlation to the VIX index at 0.83. Shares shorted have decreased from 23.88M to 21.53M over the last month, a decrease which represents about 1.25% of the company’s float of 187.33M shares. Days to cover ratio at 9.79 days.
2. JAKKS Pacific, Inc. (JAKK, Earnings, Analysts, Financials): Designs, produces, markets, and distributes toys and consumer products worldwide. Market cap at $357.38M, most recent closing price at $16.23. Correlation to the VIX index at 0.77. Shares shorted have decreased from 4.29M to 3.51M over the last month, a decrease which represents about 3.04% of the company’s float of 25.65M shares. Days to cover ratio at 13.35 days.
3. Country Style Cooking Restaurant Chain Co., Ltd. (CCSC, Earnings, Analysts, Financials): Together with its subsidiaries, operates a quick service restaurant chain under the CSC brand in the People’s Republic of China. Market cap at $168.41M, most recent closing price at $6.46. Correlation to the VIX index at 0.76. Shares shorted have decreased from 596.83K to 523.49K over the last month, a decrease which represents about 1.09% of the company’s float of 6.73M shares. Days to cover ratio at 19.88 days.
4. FARO Technologies Inc. (FARO, Earnings, Analysts, Financials): Designs, develops, manufactures, markets, and supports portable, software driven, 3-D measurement systems used in a range of manufacturing, industrial, building construction, and forensic applications. Market cap at $632.91M, most recent closing price at $37.34. Correlation to the VIX index at 0.74. Shares shorted have decreased from 985.41K to 818.08K over the last month, a decrease which represents about 1.% of the company’s float of 16.70M shares. Days to cover ratio at 5.46 days.
5. Education Management Corporation (EDMC, Earnings, Analysts, Financials): Provides post-secondary education in North America. Market cap at $512.11M, most recent closing price at $3.86. Correlation to the VIX index at 0.74. Shares shorted have decreased from 4.15M to 3.43M over the last month, a decrease which represents about 3.89% of the company’s float of 18.53M shares. Days to cover ratio at 10.16 days.
6. FTI Consulting, Inc. (FCN, Earnings, Analysts, Financials): Operates as a business advisory company worldwide. Market cap at $1.1B, most recent closing price at $26.12. Correlation to the VIX index at 0.74. Shares shorted have decreased from 5.00M to 4.46M over the last month, a decrease which represents about 1.37% of the company’s float of 39.39M shares. Days to cover ratio at 6.36 days.
7. Mercury General Corporation (MCY, Earnings, Analysts, Financials): Engages in writing private passenger and commercial automobile insurance in the United States. Market cap at $2.08B, most recent closing price at $37.97. Correlation to the VIX index at 0.72. Shares shorted have decreased from 786.15K to 207.81K over the last month, a decrease which represents about 2.15% of the company’s float of 26.84M shares. Days to cover ratio at 0.8 days.
8. Quality Systems Inc. (QSII, Earnings, Analysts, Financials): Develop and market health-care information systems. Market cap at $1.12B, most recent closing price at $18.91. Correlation to the VIX index at 0.67. Shares shorted have decreased from 3.58M to 2.95M over the last month, a decrease which represents about 1.58% of the company’s float of 39.77M shares. Days to cover ratio at 3.34 days.
9. DTS Inc. (DTSI, Earnings, Analysts, Financials): Provides entertainment technologies that are incorporated into various entertainment products worldwide. Market cap at $415.96M, most recent closing price at $22.02. Correlation to the VIX index at 0.66. Shares shorted have decreased from 2.30M to 2.09M over the last month, a decrease which represents about 1.29% of the company’s float of 16.31M shares. Days to cover ratio at 15.08 days.
10. AngioDynamics Inc. (ANGO, Earnings, Analysts, Financials): Designs, develops, manufactures, and markets various therapeutic and diagnostic devices that enable interventional physicians to treat PVD, tumors, and other non-coronary diseases. Market cap at $374.07M, most recent closing price at $10.74. Correlation to the VIX index at 0.66. Shares shorted have decreased from 1.57M to 1.29M over the last month, a decrease which represents about 1.36% of the company’s float of 20.66M shares. Days to cover ratio at 9.08 days.
11. ABM Industries Inc. (ABM, Earnings, Analysts, Financials): Provides facility services for commercial, industrial, institutional, and retail facilities primarily in the United States. Market cap at $1.11B, most recent closing price at $20.46. Correlation to the VIX index at 0.66. Shares shorted have decreased from 3.83M to 1.90M over the last month, a decrease which represents about 4.26% of the company’s float of 45.31M shares. Days to cover ratio at 3.92 days.
Written by Rebecca Lipman. VIX and short data sourced from Yahoo! Finance.
Use Kapitall’s Tools: Looking for ways to analyze this list?
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Analyze These Ideas: Getting Started
Dig Deeper: Access Company Snapshots, Charts, Filings
- Cell Therapeutics, Inc. (CTIC, Chart, Download SEC Filings)
- JAKKS Pacific, Inc. (JAKK, Chart, Download SEC Filings)
- Country Style Cooking Restaurant Chain Co., Ltd. (CCSC, Chart, Download SEC Filings)
- FARO Technologies Inc. (FARO, Chart, Download SEC Filings)
- Education Management Corporation (EDMC, Chart, Download SEC Filings)
- FTI Consulting, Inc. (FCN, Chart, Download SEC Filings)
- Mercury General Corporation (MCY, Chart, Download SEC Filings)
- Quality Systems Inc. (QSII, Chart, Download SEC Filings)
- DTS Inc. (DTSI, Chart, Download SEC Filings)
- AngioDynamics Inc. (ANGO, Chart, Download SEC Filings)
- ABM Industries Inc. (ABM, Chart, Download SEC Filings)
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