What Has the VIX Been Doing on its Weekly and Daily Charts

Sep 12, 2009: 6:20 PM CST

Let’s take a quick weekend look at the Weekly and Daily chart of the VIX to see where the VIX (Volatility Index) has traveled and the potential support level it is testing right now.

VIX Weekly Chart:

On the weekly frame, the VIX has fallen from a peak of 90 to the current value of 25 – a huge drop in volatility as the markets have stabilized from the edge of the cliff in late 2008.

A quick glance shows that we’re ‘riding’ the support of the rising 200 week Simple Moving Average and have formed a positive momentum divergence on the weekly frame.

As long as we hold this level, that’s bullish for the VIX and generally bearish for stocks… particularly if the VIX does find support at these levels.

VIX Daily Chart:

The daily frame shows that the index has been bouncing around the 22 to 27 level since July, and has formed a lengthy, multi-swing positive momentum divergence through the better part of 2009.

Remember that the Stock Market bottomed in March, which registered a lower VIX reading than January – one could assume investors were less ‘fearful’ (the VIX is often called the “Fear Index”) in March than they were in January and of course off the market touch-down lows in October and November.

For now, we’re seeing volatility contract, options premiums generally decrease as a result, and complacency (if we can call it that) returning to the marketplace as a whole.

Should the VIX break support here at the 22.50 level, then it would argue for further stock market gains and higher ‘confidence’ in the rally.

However, any turn-up in the VIX – particularly above the 27 to 30 level – would likely precede a market correction/down-swing off overhead resistance at current levels in the S&P 500.

Let’s continue to watch the VIX for any signs of upward movement.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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2 Comments

2 Responses to “What Has the VIX Been Doing on its Weekly and Daily Charts”

  1. marketsniper Says:

    Hey, Corey! I admire your work. Saw a piece elsewhere that stated that the VIX has some major unfilled gaps way north of where we are now..in the 40 and 70 area. Further, it stated that in the last 10 year period, ALL VIX gaps are eventually filled. The implication is that we are in for a repeat of last fall. Any comment?

  2. marketsniper Says:

    Hey, Corey! I admire your work. Saw a piece elsewhere that stated that the VIX has some major unfilled gaps way north of where we are now..in the 40 and 70 area. Further, it stated that in the last 10 year period, ALL VIX gaps are eventually filled. The implication is that we are in for a repeat of last fall. Any comment?