A Weekly Look at the VIX on April 21 09

Apr 21, 2009: 11:35 AM CST

The movement of the VIX has been puzzling many people over the last few months, particularly in not confirming market lows with increased upward spikes.  Let’s look at the current structure of the VIX and where we’ve come.

Remember, the S&P (and other US Equity markets) hit new lows in October (2008), November, and March.  One might expect the VIX – were it a pure inverse of the S&P 500 (it is not), to have reached higher levels on each subsequent downswing.

Keep in mind the VIX is known also as the “Fear” Index, as it measures the implied volatility of S&P 500 index options.  High values correlate with highly volatile markets (not necessarily new price lows).

This meant that the October move was more of a shock to the system than the subsequent lows that followed it – the general consensus after October was that we were going to make new lows, so the impact of those lows was less ‘shocking’ or ‘threatening’ from a volatility standpoint than the ‘surprise’ or rampant volatility of the October plunge.

A lower VIX could even argue the point for ‘complacency’ in a sense.

Anyway, I’m not entirely sure how applicable Elliott Wave methodology is to the VIX index, but it appears we’ve had a 5-wave move up off the May 2008 lows which is culminating now in the final “C” Wave of a complete Elliott full 8-wave structure.

Laying Elliott aside, the VIX just inflected down off its 50 week EMA as resistance.  It’s not out of the question that we could test the 200 week SMA at around 22, but that would mean the general stock market would continue its slow ebb to the upside which would continue to berate the shorts.

It’s perhaps more likely in a sense that the VIX will find support at the 35 level (which was resistance three times in the recent past) and inflect upwards off these levels, which would imply a down-move in the stock market.  Note the imaginary horizontal trendline which could be drawn about the 35 area.

Keep watching the VIX for further clues – and for those who want specialized information on the VIX, check out VIX and More or Adam’s Daily Options Report.

In fact, I just saw that Adam recently posted “Holy VIX!” which discusses the Daily Chart of the VIX.

Corey Rosenbloom
Afraid to Trade.com

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2 Responses to “A Weekly Look at the VIX on April 21 09”

  1. Anonymous Says:

    beware getting too enamored w/ elliot stuff.

  2. Corey Rosenbloom Says:

    Haha good advice – it’s fun to play with EW but you can’t find it everywhere it seems.