What the VIX is saying about today's plunge, and why the sell-off might be overdone 

  • Stocks plunged more than 3% Tuesday on fears of slowing economic growth.
  • As stocks dropped Wall Street's fear gauge -- the VIX -- broke above 20 for the first time since November, hitting an intraday high of 21.94.
  • But "Halftime Report" trader and Investitute co-founder Jon Najarian believes the sell-off might be short-lived since the VIX didn't move closer toward 32, indicating traders believe the market might turn around.

It was red across the board on Tuesday as stocks dropped on fears of slowing economic growth. But after looking at the relatively temperate move in the VIX, often called Wall Street's fear gauge, trader Jon Najarian believes the downturn may be short lived.

On average there are 256 trading days in a year, so when the VIX is at 16 -- the square root of 256 -- the market is predicting a 1% move in either direction. While the VIX did climb as high as 21.94 during Tuesday's session, it should have been in the mid-40s to match the S&P's more than 3% drop.

This means that bullish sentiment might outweigh bearish sentiment, so traders are betting the market might turn around rather than continue to fall.