Volatility as measured by the VIX index is in an indecisive mode, reflecting the overall market sentiment . New research from Goldman Sachs Group Inc (NYSE:GS) says the VIX is searching for a new trading range after trading near historic low levels over the previous year.

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Goldman considers recession levels to determine VIX range

In establishing a new baseline projection for a VIX trading range, Goldman considers that “26 is the median daily VIX level over the last three recessions” as it establishes both a low and a high point for its analysis.

After trading in the mid- to low teens for much of the quantitative easing economic period, lulled to sleep, the VIX is about to wake up and establish a new range. Goldman uses recessionary periods as one baseline to project the new range and then determines that “an average VIX level of around 22 over the last week is therefore the midway between our business cycle estimate for the VIX and the median VIX level over the last three recessions,” with 18 being the low point of that range.

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Flat VIX term structure represents historic indecision

The current market environment is difficult to judge, however, as “a flat term structure with no momentum in either direction signals extreme indecision,” the report said. A sloping term structure is associated with positive economic conditions while an inverted VIX term structure indicates a negative stock market environment.  Goldman analyst Krag Gregory said an indecisive VIX is justifiable at this point and “we wish the VIX a speedy recovery” to finding a decisive trading range, as this is “the most indecisive the VIX has been in years.”

Finding an appropriate range might be difficult as the VIX, which is “searching for a new home,” is, like the Federal Reserve, somewhat data dependent. Gregory notes markets are searching for economic improvement and will be keeping a close eye on economic data, including Friday's payroll report.