VIX Volatility Daily Chart

Volatility jumps higher as traders buy protection against their long holdings worried about the presidential election. VIX hit 22.57 yesterday; that is fear and panic. It verifies the elevated CPC and CPCE put/call ratios Keystone previously highlighted (scroll back for those charts).

A tradeable market bottom typically occurs when there is blood in the streets. Investors are cashing out of longs building cash positions. Short interest is robust. Trades are buying protection with the VIX. One trader jumped out of a window yesterday he was so worried about the stock market. Fortunately, he was on the first floor. The fear and panic is rampant.

The VIX and put/calls indicate that a stock market bottom should print at anytime. Perhaps the Jobs Report in two hours time will be a catalyst. Or the election on Tuesday. If these two events were not on tap, a recovery rally would be a done deal, however, the events create uncertainty since they can send stocks wildly in one direction of the other. Nonetheless, if you have fear and panic now, and stocks sell off more to the downside, you will have even more fear and panic which only increases the likelihood of a market bottom. If the jobs number is disappointing and stocks sell off after the opening bell, the dip-buyers will probably eagerly show up and buy.

The green circles show excessive fear and panic that creates bottoms. The red circles show complacency that creates market tops. Bulls rule below the 200-day MA while bears rule above the 200-day MA. The bears are happy when the VIX moved above the 200-day about one week ago but the VIX has now climbed to the levels where the bearishness and panic is excessive. Stocks should rally at anytime but a fractal like Jan-Feb may occur where the VIX drops as stocks print a relief rally but then spikes higher again which earlier in the year created the firm February bottom.

If short, keep your guard up, everybody and his bro are short. If stocks begin to rally and shorts begin running for their lives, the short-covering rally may add big upside fuel for stocks. The unknowns are the jobs report and the Tuesday elections. The current forecast is a rally for stocks in the shorter term (hours and days) but the stock market should become sick moving forward in the weekly and monthly time frames. 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.