Potential warning signs continue to appear for the S&P 500. We’ve cited narrowing breadth and the rising wedge. Today we’re looking at a highly related symbol: Cboe’s ever-popular Volatility Index, or fear gauge.
The main pattern on VIX is its mild uptrend since the beginning of July. The S&P 500 made new all-time highs 11 different times last month, but the VIX didn’t make a single new low.
Next, July 19’s high was more than 3 points above June’s high – even though SPX made a higher low. In other words, VIX is no longer confirming SPX's uptrend. Similar divergences have occurred before other pullbacks, especially in January and September of 2018:
Traders shouldn’t reach too many conclusions based solely on the chart above. This application of VIX is similar to using indicators like MACD, which can show bearish divergence for some time before a pullback occurs. At this point it’s just another potential sign of spreading weakness.
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
The main pattern on VIX is its mild uptrend since the beginning of July. The S&P 500 made new all-time highs 11 different times last month, but the VIX didn’t make a single new low.
Next, July 19’s high was more than 3 points above June’s high – even though SPX made a higher low. In other words, VIX is no longer confirming SPX's uptrend. Similar divergences have occurred before other pullbacks, especially in January and September of 2018:
Traders shouldn’t reach too many conclusions based solely on the chart above. This application of VIX is similar to using indicators like MACD, which can show bearish divergence for some time before a pullback occurs. At this point it’s just another potential sign of spreading weakness.
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
