The daily chart for the VIX continues to remain heavily bearish with the index closing the first quarter at 13.10, and well below the highs of the start of the year which saw the index climb to touch 32.09 in January. What was particularly interesting, and indeed something I highlighted at the time, the levels during the climactic price action at the start of the year, were relatively modest and not of the magnitude one would expect given the degree of volatility, before calm was restored and bullish momentum in equities returned. Indeed this was one of the significant clues that this was not the big short, that many were calling at the time, but simply a market correction which was duly confirmed once the stopping volume appeared on the daily chart for the primary indices. Since then we have seen the VIX continue to subside and approach the very strong area of support now awaiting in the 11.80 area.
This is the price level that has prevented a further advance for equities in both 2014 and 2015, but once breached will then open the way for a sustained move higher for the primary US markets, with a consequent decline in the VIX to single figures. Should this duly occur, then complacency will be dominant emotion, with the prospect of a bottom forming in the VIX and a the real development of the ‘big short’ in due course.
Charts from NinjaTrader and indicators from Quantum Trading