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Looking at the VIX Another Way



How come on the Monday after, a three-day weekend feels like it was shorter than a normal weekend? Anyway, we come back to a market where earnings news trumps geo-political news. When is the last time that happened for more than a day?

Again, one of the hottest topics of discussion is what the current Volatility Index (VIX) is saying. Many wonder what it means that it broke below 26 for the first time since the October low. The last two times the VIX hit 26-27, a steep decline in the S&P 500 (SPX) wasn't far behind.

One-year daily charts suggest traders are ignoring the VIX.

When there was no market crack on the break below support, many decided that the VIX must not matter anymore...

The reality is a more intermediate-term perspective is in order.

When you look at a weekly chart of the VIX, it is easy to see that important and significant declines happen on a VIX reading of below 20. As you can see from this set of charts, the timing of a drop after a reading of below 20 isn't perfect, but it has been pretty close.

A weekly perspective shows the more important VIX reading is below 20

The SPX responds ...

The point is that traders and investors alike should remain adaptable to a volatile environment where no one trusts any indicator very much.

Also, my best guess is that a move to below 20 on the VIX would be generated by a rally to the upper end of the S&P's current range.

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No positions in stocks mentioned.
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