According to a Friday note from Fundstrat, the stock market's fear index is sending mixed signals to investors that suggest a bottom in the S&P 500 could be near.
The correlation between the level of fear among investors and the stock market is known as the Cboe Volatility index. When the stock market goes up, the VIX goes down.
On Thursday, the S&P 500 dropped 1%, sending a confusing signal to investors that could ultimately prove to be bullish for stocks, according to Fundstrat's Tom Lee.
There have only been 10 instances when the S&P 500 fell 1% on the same day the VIX fell 5%. After those occurrences, the average forward six-month and 12-month return for the S&P 500 was 16.8% and 35.2%, respectively.
Lee said in response to the data analysis that one can't get hurt buying stocks here even if there remains downside risk.
The stock market was positive one year later 100% of the time and positive six months later 80% of the time.
The stock market was near an ultimate low when the VIX fell 5% on the same day the S&P 500 fell 1%.
Lee wrote that every single instance was close to the low and 8 of 10 times at the low.
If the stock market does reverse higher this month and make a low, it will be the third time in March that it has done so. The dot-com bubble peaked on March 10, 2000. The S&P 500 bottomed out on March 9, 2009, during the Great Recession, and again on March 23, 2020, during the Pandemic Sell-off.
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