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How to Use the VIX to Find Stock Market Tops

TVC:VIX   VOLATILITY S&P 500
88 0 5
The VIX             is a great tool to find SPX             bottoms, especially if you use Bollinger Bands with the VIX             .
Note how the SPX             is at or near a bottom when the VIX             spikes above the upper Bollinger Band .

Finding SPX             tops is different. Many traders mistakenly think that when the VIX             is reaching a bottom it signals an SPX             top. Most of the time the VIX             will need at least one divergence to signal an SPX             top. Note the August 15th SPX             top had a small VIX             divergence. This phenomenon works on a larger scale as the SPX             is higher in November while the VIX             is also high.

As of November 23rd there's still no VIX             divergence for the rally that began on November 4th. There is however a developing VIX             divergence on the intra day chart which I will illustrate in my next post.

Mark

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