VIX Volatility Weekly Chart Oversold Falling Wedge Positive Divergence

The VIX has been beaten this year ever since the fiscal cliff resolution. A look back at history is helpful. QE2 created a strong market rally into early 2011, the green line shows how the VIX drops as traders become complacent drinking the QE2 wine each day. The red arrows show the significant sell-offs over the last couple years; the market top in February 2011, the top in April 2011, the July 2011 top preceding the August waterfall crash, and so forth.  Note how the central banksters jump in each time to save the day and prop up the markets, like propping a drunk up against a lamppost to help him stand. The lower trend line is of interest since the nature of the downward slope indicates that the Fed and now ECB, and other central bankers, like Japan, are creating complacency over time. Traders become accustomed to the easy life with money printing simply boosting asset prices, fundamentals be d*mned.

The indicators are positively sloped so if price can finish up in the red circle area, the VIX should be ready for a strong move higher corresponding to the markets selling off. The game-changer was the fiscal cliff resolution the last day of 2012 into the first couple days of 2013. The VIX collapsed as traders ran to the complacency side of the boat. When you have a rich uncle that is kicking the can down the road (politicians) and not willing to make any hard decisions, and another rich uncle that is handing you money (central banker printing), why worry?  Simply sit back and take it easy and ride the party train. Obviously this is a sick situation.

Of interest is that the rumor, and then the vote a few days later, that extended the debt limit ceiling into May 2013, that occurred the second and third week of January, created the further push down to the low print seen on the chart. That entire move down by the VIX in January was due to the politicians kicking the can down the road telling traders not to worry, the government does not plan on doing anything moving forward, and will simply kick the can until it all falls apart some day. Thus, complacency rules. The VIX is showing some signs of life over the last couple weeks; it sits at 13 right now. A move higher is expected at any time from a 12.5-13.0 bottom. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.