It took a couple of weeks, but volatility is finally making its encore.
Earlier this month, I wrote about how the chart of the Volatility Index (VIX) was setting up for another spike higher. We got that spike yesterday as the broad stock market sold off and the VIX jumped 31%. And, by the look of the following chart, the VIX could climb even higher before this show is over.
Take a look…
When the VIX spiked higher in early February, it was trading well above its 50-day moving average (MA). And all of the various technical indicators you see on the chart – the MACD, RSI, and the Commodity Channel Index (CCI), another measure of overbought or oversold conditions – jumped into “extremely overbought” territory.
Even after yesterday’s pop higher, the VIX is only slightly above its 50-day MA. And the various technical indicators still have plenty of room before they can be considered extremely overbought.
Notice also that the VIX closed yesterday above its upper Bollinger Band. While that does indicate an extended condition, we saw back in February how this could mark the start of an explosive move higher in the VIX. We can’t be sure this rally in volatility is over until the VIX closes back inside its Bollinger Bands.
In other words, yesterday’s action might be just the start of another sharp move higher in volatility. And a higher VIX usually accompanies a lower stock market.
So, it’s looking more and more likely that we’ll soon see the S&P 500 retest its February closing low near 2581.
Best regards and good trading,
Jeff Clark
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