The VIX, Fear, and Saudi Arabia ...

tenteddies

As investors know, the VIX (Volatility Index) is often referred to as the Fear Index.   The association with the Fear Index concept is that people sell when they are afraid, and buy when they are confident.

Many investors look at short term views of the VIX to try and get a trading advantage.   But, too few bother to look at a long term view.   

The long term view gives one a perspective that cannot be derived any other way.

Today, let's look at the long term VIX and the story it is trying to share about the market.

Today's chart goes back to 2006 and shows the 9.39 VIX low that was made in 2007.   That is the long term support line.   We may never get down to that level, but unless the VIX breaks through the upper resistance and starts a new up trend, then it will remain a possibility.  

If the VIX moves below the current, shorter term support of 15.23, then moving down to 9.39 would be a possibility.  

Fear doesn't always have to be about the stock market, it can be about political turmoil, revolts, gas shortages, food shortages, and a host of other possibilities.   Sometimes, an event can have a domino affect where other problems or events get triggered.  The more global the impact, the larger the influence on the markets and investments.  

The VIX will usually tell when something is going on.   Like two weeks ago when it spiked up.  It wasn't so much about the growth of the economy as it was about unrest and revolts occurring in Northern Africa.  These transpiring events have domino affects that go to oil supply questions, which go to economic impact questions etc.   

So, two weeks ago, the VIX started moving sideways and halting its positive down trend for the market.  Now, as long as the VIX remains below 23.84 and above 15.23, then it will be in a sideways trading range.  This would imply that the stock market will be moving sideways with high volatility swings for the coming weeks.

However, for a long term trend change, keep a focus on the 23.84 and 15.23 levels.   Above 23.84 would put the market at risk of having a serious correction, and above 23.84 would likely relate to Saudi Arabia's protests and/or risk of having a revolt which could threaten oil and gas supplies.

Below 15.23 would relate to renewed world and economic confidence, and calmness in the oil producing countries.   

For now, Saudi Arabia is facing a "Day of Rage" on Friday, and a possible push for a revolution on March 20th.  So, until this turmoil settles down, the markets will be at risk of a spike in fear levels.

zippo

回复 1# tenteddies
thanks.