With equity markets moving firmly lower over the last few days, it’s time to consider the VIX as the ultimate barometer of risk sentiment, to try to gauge the current weight of fear now driving the index higher. The key level breached last week, was the resistance area at 14.10, with the candle of the 25th September, opening just above, and duly closing through two other minor levels at 15.10 and 15.50. The second of these was tested again on both Monday and Tuesday , with yesterday’s candle then closing higher, but with a deep wick to the upper body, as the next major resistance level at 17.40 was duly probed. This was the region tested back in August, with several attempts to break higher and which duly held firm, with a consequent decline in the index, duly returning lower and back towards the single digit territory with fear being replaced with complacency.
With the principle index futures now suggesting a higher open, the VIX too is confirming this reversal in sentiment on the day. However, whether this is simply a pause point or a more sustained change in trend as we saw back in August, only time will tell. The principle indices are struggling to recover from yesterday’s bearish candles, and for the ES emini, its resistance in the 1968 region which holds the key, whilst for the NQ emini it’s the 4018 area. Should we see any reversal in the VIX, then in the longer term it’s the platforms now in place at the 14.10 and 12.50 areas which will both need to be breached if equity markets are to return to their longer term bullish momentum once more. Such an effort will require sustained and rising volumes in the cash and futures markets, and a consequent move through the heavy congestion zones on the daily charts for the major indices, created during the September consolidation phase.
By Anna Coulling