It’s been a while since we took a big picture look at VIX. Since it reached levels not seen since the GFC yesterday, this seemed like as good a time as any.
VIX is an interesting instrument. Once a reliable measure of volatility in the market, it was used by many to hedge risk. As equity corrections became an endangered species, however, fewer investors bothered.
Eventually, VIX became a source of income for those willing to take a chance on selling vol. It might have seemed risky at times, but every one of the six times VIX exceeded 46 since 2010 was followed by a collapse to below 15. Actually, make that 5 out of six times.
On Feb 28, VIX shot up to 49.48, but it only dropped as low as 24.93 before bouncing up to yesterday’s high of 62.12. The price to which it rallied was significant.
Eagle-eyed members will note it’s been one of the higher targets on our charts for years – but, one we seldom mention as VIX is always smacked down upon reaching a lesser Fib level and a price between 46 and 54. From the post Market Timing, a Bad Thing? last October.
The 25.50ish target represents the intersection of the .382 Fib, two red TLs and the midline of the white channel seen below. If 25.50 should ever be broken, things could get very interesting very quickly.
The 62.12 high was very close to the .618 retracement (58.6) of the drop from 89.53 in 2008 to 8.56 in 2017.
Now, it was no surprise that VIX stopped rising once ES had dropped to our 2728 target. But, the breakout begs the question: What do the charts say about the even higher targets?
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