Tuesday, September 30, 2014

VIX Volatility Weekly Chart

The green circles clearly show the creation of stock market bottoms since fear and panic peaks. Overall, the bulls continue a long near six-year stock market party and volatility has crashed lower into this sideways low trend through 11-14 for a couple years. The low VIX creates the stock market lift. Former Fed Chairman Bernanke would keep his foot on the neck of volatility to keep the stock market elevated and his boot is now replaced with current Fed Chair Yellen's high heel.

The VIX is trying its best to run higher but it is tough odds with the Fed and other central bankers dropping money from helicopters. The significant market bottoms over the last two years were created when the VIX printed in the 18-22 range. The VIX HOD yesterday is 17.08 the highest since the prior high which identified the August stock market bottom. The VIX did not yet touch the 200-week MA at 17.48 which would be expected; and higher volatility means lower stocks.

The 5-1/2 year rally is record-making and very long in the tooth. The safe play for long traders is to simply continue staying away from the stock market and wait until the VIX prints at 21 and higher and only then you can start nibbling on some long positions that are on your shopping list. At VIX 21 and higher you can be far more comfortable you are receiving decent entry points for the long side on an intermediate and long term basis. Until then, cash is a good position. If the VIX moves above 17.50 start to stay on guard for a market bottom.

The S&P futures are higher this morning so the VIX will likely drop lower remaining in the 15's so the thinking would be that the bears will growl again after any market buoyancy occurs today and/or tomorrow. The stock market can place a near-term bottom today and use the VIX 17.08 as the market bottom, however, this is a very cheesy bottom and a higher VIX, at least above 17.50 would be anticipated before a firm bottom can be established. The central bankers are in control, however, so a few dovish comments could easily create a stock market bottom in the near-term such as today.

The expectation is that more market selling will occur and a higher VIX will print before a near-term bottom occurs. Use the BPSPX as a guide. As long as BPSPX stays under 70 the VIX should continue higher. If BPSPX moves above 70 the near-term stock market bottom is in and the VIX will likely collapse through the 15's, the 14's, the 13's and even down into the 12's. 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.

Note Added 11:40 AM: VIX drops to 15.33 at the opening bell to send stocks higher. Then the VIX runs higher to 16.41 at 10 AM so the stock market prints at the lows. Then the VIX collapses to 15.20 sending stocks to the intraday highs.

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