VIX Finding a Bottom 11/30/2020

TVC:VIX   Volatility S&P 500 Index
VIX at the daily view.

The title speaks for itself. Like I said before, VIX is not showing signs of a ramp up or uptrend. There was a bullish RSI divergence, but that takes several days before it actually resolves itself. Right now, liquidity is still high and market breadth increased. So, that means rallies in the ES are much more sustainable. Moreover, imagine how many shorts are trapped in the financial, energy, and industrial sectors. Even if the market does correct by price, it would now be much harder to make a big crash happen.

The VIX is still continuing its dance. The VIX is now just riding down the last RSI support below. It will make bunny hops along the way. That said, the VIX is currently finding a solid bottom. It should be around the 20 area. "Should" is the variable word. The VVIX is still above 105, but it's getting concerning that the VVIX is not bouncing the way it had before. The VVIX is the internal engine of the VIX . When VIX looks like it's about to collapse, the VVIX make that final determination and saved it a few times this year.

What's the trajectory? VIX needs to start basing a solid bottom this week or it may face a collapse. A bottoming pattern in the VIX takes days to resolve. Many new traders do not understand that about the VIX . They tend to think that the VIX would just automatically spike from a certain number. In actuality, the VIX will not bounce if liquidity is high and market internals are healthy. Even then, the VIX will not spike from support until those two elements turn sour. Thus, VIX traders tend to go long way too early and lose from the decay (either time decay or ETF decay). It's due how long it takes to form a VIX bottom that causes it.

The VIX rewards patience, precision, and adaptation. It's why the VIX tends to eat permabears like Skittles. One bad trade can eat up more than 20% of your account. The mentality of trading the VIX is not timing the bottom. It's mainly risk management. If you want to long the VIX , you need to see a confirmed bottoming pattern first along with a breakout pattern. If you want to short the VIX , you simply wait for the seasonal spike. Both moves may yield smaller profits, but the probability is much higher. A permabear tries to think they can get rich quick with the VIX . The VIX punishes excessive greed like that.

How do you approach the VIX? As Bruce Lee said, "be water."


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