The rainbow tracks divergences in a security and its index. This can be used to identify periods of heightened implied (future) risk.
The is calculated by looking at put / call ratios. When VIX goes up it means that puts are outpacing calls. This is a signal.
When the security goes up while the VIX goes up, the divergence on the plot will increase and turn a color. This should be a warning.
RED - DIA
BLUE - SPX
GREEN - IWM
GOLD - GLD
YELLOW - QQQ
ORANGE - TLT
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.