Sunday, May 29, 2016
VIX Volatilty and SPX S&P 500 Weekly Charts
The red circles show significant market tops when volatility reaches uber lows representing complacency and lack of fear. What do you think will happen on this weekly basis? The peaks in VIX represent rampant fear when market participants are jumping out of windows and swearing they will never own a stock again. Of course that is when you buy when the blood is flowing in the streets and everyone is panicking (VIX above 30). The spikes higher in the VIX are very useful for timing an entry back into the long side and are actually a better tool for the VIX chart rather than using the complacency (low VIX), as is in place right now, to call a market top. The CPC and CPCE put/calls are a slight bit better at calling market tops and the uber low 0.61 on the CPCE is something to respect if you are long the market and not worried.
The VIX drops to lows not seen since last summer when stocks had topped out. The VIX under 12.2-ish has forecasted every significant pull back over the last three years. Volatility becomes low indicating complacency and lack of fear by traders so the stock market sells off hard to slap them in the face and bring them down to Earth again.
The stock market top that formed late last year occurred with the VIX reversing higher from 14-ish. Two recent tops are called by the VIX at the current level at 13.12. The VIX may venture down to the magical 12.2 line but as seen with the Fall stock market reversal, the VIX can reverse higher at anytime causing a market selloff. It is worthwhile to monitor the VIX each day forward to see how the chart plays out. 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.