I've plotted this relationship over the years here and here is the current update.
The concept: When VIX spikes by 5 points or more and then retraces 75% of that spike, buyers have absorbed the selling from the panicky sellers and provided liquidity to an illiquid market.
AFTER these episodes, you can use them for reference and support. See how there have been 8 such episodes in the S&P500 over the past 9 months under current price levels. This is a fascinating 'accumulation' level where significant investors have been absorbing the bearish headline news and fears. Notice how the last two of these levels sit on top of the level from the previous 6, showing a perspective of long term strength.
Currently there is no signal, but on the recent spike/retracement in VIX I highlighted how this was support. All of the green horizontal lines are support levels below us. I view short term declines as highly likely to find support at those levels.
If you view "VIX" as a measure of "liquidity" instead of "fear" then you will get a much better handle on the logic of how to use VIX. If VIX is LOW it means that LIQUIDITY IS HIGH.
See the other linked charts where I explain it in detail.
Wishing you all well.
Tim West
7/24/2018 4:42PM EST
Comment
⋅
Another VIX spike and 75% retracement provides YET ANOTHER support level for the SPX500SPY S&P500.
Comment
⋅
Here's the VIX 75% spike retracement
Comment
⋅
Here it is.
Comment
⋅
Time to update the chart - If you click on the original and update it you can see the decline is coming down to all of the support levels that were were overdue to RETEST. So, take a look around at what is cheap down here and put your buy list together. The current VIX spike is still ongoing so we can monitor that too.
Here's another way to VISUALIZE the VIX spike and Retracement ACCUMULATION LEVEL.
Comment
⋅
I published a new version of this chart, but should have just updated this one.
11/8/2018 11:59PM
Comment
⋅
The previous VIX 75 signal didn't get tested, but now the market has come back to test the level with the correction into the low today. There are plenty of fears from a failed trade deal with China and new tariffs starting tomorrow, together with fears of retaliation. Overall the economy is 19 trillion and these are small potatoes issues, but it is having an impact on psychology. There is evidence that we have seen some strong selling in the market and that is because we keep seeing selling wave after selling wave come into the market as VIX shoots higher and higher. The first wave was to VIX 18.8, then to 22, then 23.4 today. Investors, I believe, have sold stocks and replaced their stocks with cheap call options. Why? When VIX was very low, it made sense to swap stock for cheap calls. Calls are buying purchased relative to puts when SKEW is low and SKEW is at a 15 week low, as of yesterday.
Enough of the mumbo-jumbo. Let's get back to basics.
The SPY is coming down to retest the support from the last VIX-75% signal, which is important support. IF it doesn't hold, the next lower level is down another 2%. See for yourself.
Find me in the Key Hidden Levels chatroom, where I spend most of my time.
Tim. 5/9/2019. 11:46AM EST
Comment
⋅
tradingview.com/x/N02OzDEa/. In the chatroom where I spend nearly all of my time at TradingView, I've been commenting on the support levels that are based on the logic of where big money stepped into the market and bought at previous lows that caused the VIX (liquidity indicator) drop 75% after a 5 point run-up spike. Why does this work? Because it does.
Tim. 5/11/2019. 2:08PM EST
Comment
⋅
The idea support held on Friday and Monday tested an older support, and held above the 278.44 support from the March accumulation.