Why the VIX has such a big impact on the S&P500 and how we can actively factor this into our trading follows in part two.
PART TWO "VIX CHARACTERISTICS"
The "VIX" provides information on how serious fluctuations could be based on the option volume.
= "VIX" goes up -> Statistically more likely that the S&P500 will fall. = "VIX" goes down -> Probably that the S&P500 gains slightly.
Additionally, it can be noted that as soon as the "VIX" gets close to - 36.47 - many market participants take profits.
WHY IS THIS SO?
The market has already reached a "VERY VOLATILE point".
> Price - FALLS - fast = SHORT positions will take profits > BUY > Price - RISES - fast = LONG positions will take profits > SELL
CONSIDERATION OF "VIX" IN TRADING?
"VIX" = Negative correlation to the S&P500 = "VIX" goes up = S&P500 goes down.
= This negative correlation occurs because institutional investors use options to hedge against high volatility (hedge against stocks).
RISING "VIX" = less liquidity in the stock markets + position reduction = stocks fall
FALLING "VIX" = More liquidity in the equity markets + position building = equities rise
PART THREE "CURRENT SITUATION"
> The "CORONA crash" could not make a new HH in the "VIX", which is why this could still be pending at the current view.
= 2020 the market "fell" "35.41%" in the SPX = 2008 the market "fell" "57.69%" in the SPX
With the technical analysis, I come with the current constellation, to a higher "VIX" value than the 2008 reached.
= which would mean a bigger sell-off.
> Since 2018, we have been testing a "falling resistance line."
= Similar resistance lines resulted in the past when broken, with significant volatility + movement in the S&P500 (= traditional markets).
= The current resistance line has been respected several times, resulting in reactions.
> The "rising resistance line" since 1990 + "the arc" + "the macroeconomic environment", suggest another "VIX" breakout.
> The rising resistance line was tested at the two "extremes" - 01.10.1998 + 01.10.2008 - on.
= this meant, both times, the temporary end of the extreme volatility = in 2020 we could not reach it, which additionally suggests another "breakout".
> If the price trend continues to consider the direction of the arc, then this leads us to a much higher target than 2008 / ever before.
PART FOUR CONCLUSION
"If the VIX is high, then it's time to buy, if the VIX is slow, it's time to go"
> Regardless of the outcome of the analysis, anyone who hasn't used the VIX before should now have gained a little insight.
The future looks anything but bright for now, however we can use this time to learn and grow.
The VIX could delay the final decision for another 2-years, which is certainly to the advantage of each of us.
= Despite this still "long" period of time, a decision will be made in the future.
> Let's discuss it in the comments and exchange our perspectives, your view on the whole thing would interest me "burning".
If this idea and explanation has added value to you, I would greatly appreciate a review of it.
Thank you and happy trading!
Trade active
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The VIX has reached the area of low volatility and one can already see a flattening of the rapid rise in the traditional markets.
> In addition, we are at the support line, which in the past had caused a bounce in the VIX.
> Here, we can expect a rise in the VIX and increased volatility in the equity markets. > This can result from the DXY being sold off further, or experiencing the rise I expect.
Whatever the outcome of the situation, I would like to refer again to an important quote in my post: "If the VIX is high, then it's time to buy, if VIX is slow, it's time to go".
The marked level is in the following chart:
Trade active
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In the - 3 DAY - Perspective, we got now a Bullish Divergence, which is one of many hidden signs that the VIX will go up.
> Please read the article above, to understand what this means for the whole finance markets and your trading behavior.
Comment
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At the end of my article, the following sentence was quoted:
"If the VIX is high, then it's time to buy; if the VIX is slow, it's time to go".
We have recorded another low in the VIX! > Based on the saying and my own understanding of the INDEX, the following conclusion is supported by this.
> The stock market / economy is overbought and way too far up. > The traded prices have not been in line with the "REAL" value for a long time. > The following trades (mid-long-term), should be considered from the SHORT perspective.
@CuzDelux, that would be absolutely insane, you sure that it will happen while the summer gap?
CuzDelux
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@ZielIstDieAutarkie, Sure of nothing, lol. My goodness, no one at all said 4600. But, hey, it still looks like a B-wave off the lows. Bulls would be buying waves 4, then waves 2 all the way to 3500. Then, we go to 2850, which is the big boy target across the board. You can see it, where liquidity dries up in that June '24 contract, the only remaining buy limit is 2800. 2829.25 or bust. Next June??
ZielIstDieAutarkie
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@CuzDelux, we'll be ready and welcome it / but that get's 100 % a challenge for everyone!
204f527996864c37bf99691291ae25
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yeah, honestly, the only important takeaway is that when its low you go and when its high you buy. This index has always been very obvious but interesting observations nonetheless.
There are many complex reasons for the incoming crash. To me, china bubble popping will be the biggest. There is just too much blind faith, almost religious faith and disconnection from reality. Officials just don't understand what ccp is, what china is. Take recent balloon uproar. They don't have a clue. It could almost be mistaken for naivety. No need to think much what's going to happen.
ZielIstDieAutarkie
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@204f527996864c37bf99691291ae25, religious faith and disconnection from reality summarize it perfectly. But ya I would not underestimate their decision, too many intelligent people behind decision. Let´s see whats the result.
Th3Unkn0wn
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Disagree
ZielIstDieAutarkie
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@Blakdi, thats good and can we get also your argument?