VIX Volatility Daily Chart

The VIX is above the critical 200-day MA at 17.19 so the bears are in control of the stock market in the short-term time frame. Remember when Keystone posted this chart a couple months ago highlighting the brown circle? May was a tough month for stocks and as June started, the VIX was perched on the 200-day MA. The VIX direction from this pivot dictates the path ahead for the stock market (VIX and SPX move inversely about 90% of the time) and the VIX collapsed below the 200-day sending equities on a 7-week joy ride (green arrow) with new all-time record highs printing for the major indexes.

Alas, as the joy continued in stocks and highs were printing day after day, the VIX would not fall day after day as would be expected. When the SPX printed its all-time high at 3028 (3027.98 on 7/26/19) a couple weeks ago, the VIX lays flat (blue line); a divergence. Considering the epic new all-time record highs, the VIX should have been printing an 11-handle on its way to 10. Instead, it hung around the 12-13 range and then the central bankers could no longer hold the VIX beach ball underwater. Whoosh. Volatility pops and stocks drop.

Bears continue winning as long as the VIX remains above 17.19. A big relief rally will occur and bulls win below 17.19.

The Keybot the Quant algorithm is on the short side these days and tracking VIX 14.74 as a key bull-bear line in the sand. Thus, bears win and markets fall apart with the VIX above 17.19. Between 17.19 and 14.74, stocks will chop sideways and begin favoring an upward bias the closer the VIX gets to 14.74. Below 14.74, the bulls will rule the stock market as they send indexes back towards the record highs.

If stocks rally over the next few days but the VIX does not drop below 17.19, the rally is phony and stocks will sell off again. On say a week or two basis, if stocks rally for several days, but the VIX does not fall below 14.74, the bulls got nothing and equities will roll back over to the downside again. Bulls must push the VIX below 14.74 to guarantee stock market joy ahead. The VIX is printing at 20.27 on Wednesday morning 90 minutes before the opening bell for the US regular trading session. 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.