June 5 Chart of the Day - The VIX
The VIX (ticker symbol /VX) is a real-time market index that represents the market's expectation of 30-day forward-looking volatility. Derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors' sentiments. It is also known by other names like "Fear Gauge" or "Fear Index."
Investors, research analysts and portfolio managers look to VIX values as a way to measure market risk, fear and stress before they make trade decisions.
The Volatility Index (/VX) moves inversely to the indices and can often be an indicator of upcoming market moves... Essentially providing traders a Trade Entry Timing Tool that also can indicate when to exit and take profits!
One can see that between the 2008 financial crisis and the 2020 global pandemic that the VIX trended downward... As a result the stock market trended upwards which significantly enhanced the value of almost everyone's 401K accounts. This relationship exists across all time frames and is especially important to intra day traders and swing traders because there is unprecedented VOLATILITY within the intraday markets!
Historically, whenever VX has been under 20 the overall market sentiment has been bullish.
Taking a look at the weekly and daily VX charts traders can see that price is approaching some potential levels of support.
Does this mean that the markets will change on a dime? Not necessarily...
But the Vix does provide an additional tool for Price Action Technical Analysis traders for trade entries, exits, and overall trade management.
We can see that price is well below 20 and there's been a recent up tick in the overall markets. Coincidence? Maybe, maybe not depending on your perspective.
Ultimately, the relationship between the VX and overall market sentiment works across all time frames and is particularly helpful to intra day traders.
So what's next?
Nobody knows for sure but using these 5 price action tools traders and investors can develop levels of interest in both directions.
- Support/Resistance
- Trend
- Fibonacci
- Supply/Demand Zones,
- Change Control Zones
Take a look at the charts and let us know what you think.
We'd like to hear from you in the comments sections.
Wouldn't it be Nice if You Had a Way to Anticipate Market Moves?
While it may be considered common knowledge to some it is a widely unknown phenomenon to most traders...
Join us as we walk you through the specific details of the correlation between the VIX and the rest of the market and how to incorporate this relationship into your trading style to increase confidence and consistency!
