The stock market's fear gauge is approaching a key technical level that could signal further upside for equities, Fundstrat's Tom Lee says

• A potential collapse in the VIX, a widely-followed index that measures expected volatility in the stock market, would signal further upside ahead for the equities, according to Fundstrat.
• In a note on Thursday, Fundstrat's Tom Lee said investors would be in full risk-on mode if the VIX made a move below 20 — the VIX currently sits at 24.55.
• A move below 20 in the VIX "would be a major risk-on signal, as it would suggest that investors see lower volatility in the coming months," Fundstrat's Tom Lee said.
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A continued collapse in the Cboe's Volatility Index, or VIX — commonly referred to as the stock market's fear gauge indicator — could suggest further upside ahead for equities.

That's according to Fundstrat's Tom Lee, who observed in a note on Thursday that the measure is on the verge of falling below 20, which would be the first time since the start of the pandemic that it fell below that key level.

The VIX helps investors measure the expected volatility in the stock market, and since a spike to just below 40 in the last week of October, it has been in free-fall mode, dropping to its current level of 24.55.

Dropping below 20 "would be a major risk-on signal, as it would suggest that investors see lower volatility in the coming months," Lee said. "In other words, this would be more firepower to buy equities,

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The VIX traded below 20 for much of 2019, which was a strong year for equities.

Fundstrat's technical analyst Robert Sluymer is in agreement with Lee, who pointed out earlier this week that he expects the VIX to "collapse through year-end well into 2021."

And if the VIX does continue to move lower, Sluymer expects the S&P 500 to march to 4,000 into early 2021 based off of a measured move of the 12% trading range in stocks over recent months.

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