For the last two months as this recent stock market correction has continued I have been watching the VIX closely for timing signals.
Normally, VIX rises quickly due to increase volatility and "fear" as the stock market makes new lows. An interesting divergence developed on the 2/24/2022 S&P 500 low which saw the VIX fail to make a higher high than VIX of the 1/24/2022 market low. The divergences do not stop there as I have noticed the VIX lows increasing rather than falling off quickly suggesting sustained "fear" in the market.
That has changed today. Last night I noticed the 33.18 level which is a 50% Retracement from the recent 3/8/2022 high on the VIX. Today's rally coincides with a test and hold of this VIX resistance. Should this VIX resistance hold the volatility could fall implying a rise in the S&P 500 and an end to the recent stock market correction.
Comment
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I become more convicted that the correction is over as VIX has recaptured 26 and continues to go lower.
If you look at the 2 hr and 4 hr the VIX closed at support today. Could be a W formation with a measured move to 46ish IF it break outs from the W OR it could continue to break down from here. OPEX this week makes things very interesting...I stand by my thoughts that we must close this week on the ES over 4308.75 to run otherwise we could just chop around and range on the downside for a bit waiting to either break down or up. I'm not turning bearish even if we break below the Feb 24th low this week...for me it's about this weeks close that is very important. IMO it's a make or break week.
norok
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@happyCloud1537, It could be this pattern of which you speak but to keep things simple for myself I am keying off the lower highs. That tells me despite the market even making lower-lows "fear" is not increasing. It is a significant divergence. Then today you finally broke the trend of rising lows on volatility. I agree... make or break!
Vixtine
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@norok, Good call! Today's open is very telling...
norok
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@happyCloud1537, I feel something... I always hedge my calls but the tea leaves are all pointing me to a high conviction.
Tradersweekly
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I agree. I think recent drop in VIX suggests return back to new normal.
norok
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@Tradersweekly, I am becoming more convicted with each passing lower VIX day.
GiveMeSkinny4Sho
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I know many people don't care about the fomc tomorrow but it will be the most influential announcement in 14 years since 2008. Until then, nobody knows anything.
norok
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@GiveMeSkinny4Sho, I care. At the same time I have been following FOMCs for years and the primary job description of the Fed Chair is "be able to speak at length and say nothing"
GiveMeSkinny4Sho
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@norok, That's a perfect description. I guess it's more about how people "react" to the minutes rather than what is actually said, or lack thereof. I notice my post above didn't include the first sentence where I thanked you for this post. I really like your analysis and analyses on other posts especially your "lesson" sessions. Please keep it up. Thank you Norok!
norok
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@GiveMeSkinny4Sho, It was quite an impactful announcement wasn't it? It also defied what people thought... a "more hawkish" Fed and stocks go up!? So even people's expectations were wrong about what the news would do to stocks. What was correct... was watching the VIX! Hope you're getting some insight!