I have been talking about the Volatility Index (^VIX, 74.26, up 6.62) on a monthly basis now and for those of you new to the blog, the VIX is the CBOE Market Volatility Index that measures market sentiment. The market has had a lot of downward momentum and when the market goes down, the VIX goes up. The value of the VIX decreases when the market heads higher.

At the end of September I had mentioned how the VIX had spent 10 trading sessions in the 30’s and looked poised to jump into the 40’s, which at the time was suggesting Wall Street was anticipating a dramatic price decline in the market. As we headed into October the VIX kept rising and we saw the market fall to a fresh low a few weeks later as the Dow hit 7,773.

The VIX hit a high of 90 once we bottomed and fell to a low of 44 right before the President election which is still high. For you history buffs, if the VIX is at 30 or more then it means the market is nervous. If the VIX is under 20, the market is confident. It’s not clear what the “new” standards should be for the VIX because the volatility has also been historic.

However, this week is getting worse by the trading day and we could see the VIX test its high. If that’s the case, be prepared for another leg down. If the VIX reaches 100 the Dow could easily fall below 7,500 which could trigger a massive sell-off

Rick Rouse
Rick@OptionsMentoring.com

The Dow has fallen into negative territory once again after rallying over 200 points earlier this morning. Since its high of 11,800 at the beginning of the month, the Dow has fallen over 1,200 points with 800 of that coming this week.

I’ve been mentioning the VIX (VIX, 37.74, up 1.52) lately and for those of you new to the blog, the VIX is the CBOE Market Volatility Index that measures market sentiment. The market has had a lot of downward momentum and when the market goes down, the VIX goes up. The value of the VIX decreases when the market heads higher.

If the VIX is at 30 or more then it means the market is nervous which is currently where we are at. The VIX closed at 25.66 and the Dow stood at 11,421 last Friday. You can see the rise in the VIX as we headed lower on the Dow this week.

If the VIX is at 20 or lower then it means the market is confident. There are no real catalysts for the market to head higher until maybe when the election gets into full swing. It’s possible the VIX heads into the 40’s as we close out September and head into October. Company earnings will be coming out in a couple of weeks and you can almost bet we are going to see even more volatility.

Although the VIX is not a tell-all sign on where the market is headed, it can be a helpful tool. The market is not out of the woods and it will be interesting to see if we can hit the mid 40’s on the VIX. If this happens there will be plenty of opportunities to go long with call options on certain stocks and sectors.

Rick Rouse
Rick@OptionsMentoring.com

The market has been on a roll and it’s been a while since I have mentioned the VIX (^VIX, 21.32, up 0.18). Those of you new to the blog, the VIX is the CBOE Market Volatility Index that measures market sentiment. The market appears to be building momentum and when the market goes up, the VIX goes down. The value of the VIX increases when the market heads lower.

If the VIX is below 20 then it means the market is confident which is currently where we are at, basically. The VIX was at 28.54 on July 15 and the S&P 500 stood at 1,214. If the VIX is at 30 or more then it means the market is nervous. The S&P 500 is now at 1280 and the VIX is below trying to get below 20. See the correlation?

Although the VIX is not a tell-all sign on where the market is headed, it can be a helpful tool. Since the mid-July spike, the VIX has been trending lower as the market gains confidence. There are still plenty of headwinds the market faces but the VIX has room to move significantly lower from here which means the market could continue higher.

The Dow was facing resistance at 11,600, and that level was broken yesterday with the Dow closing at 11,615. The volatility is going to continue but bottoms in the VIX have generally occurred near the 16-18 area. The VIX will need to make it below 20 if the rally is going to continue. Otherwise, this could be a bear market bounce that we are riding higher.

I have to give it to the bulls though. After a triple-digit loss to start the session, the Dow in only 8 points away from making it into positive territory as we head to lunch.

Rick Rouse
Rick@OptionsMentoring.com