Puttin on the VIX

I reside in the United States, in a state that has a high number of coronavirus cases. It doesn’t seem like there is any end in sight. Throughout the US 4 weeks of initial claims data show that nearly 22,000,000 people have applied for unemployment benefits. There is unprecedented Monetary Policy action abd fiscal deficits at or near all-time highs. We are at the beginning or earnings season, and thus far it hasn’t been pretty. Forward guidance has been significantly lowered or removed altogether. People aren’t back to work. Schools haven’t reopened. Granted, AMZN is trading at record highs and NFLX is right with it (No surprise, given the lockdowns). But companies such as GE are near lows not seen since 1992! Has the market priced in too much of an economic recovery too soon? Stock traders seem to have the mentality of “Things Can’t get Any Worse”.

With all this negativity one may think that the VIX is near record highs. However, that is hardly the case. On a daily timeframe, the VIX is trading at 40.10 and has stalled at the 61.8% Fibonacci retracement level from the lows on February to the highs on March 18^th. There is also horizontal support at 36.20, which were the highs from December 2018 and the flash crash VIX spike lows from March 24^th. Could this be the place where the VIX turns higher?

Source: Tradingview, Forex.com

On a 240-minute timeframe, VIX has been trading in a consistent downward sloping channel since March 25^th, however the top trendline of the channel extends back to the highs on March 18^th at 85.5. Yesterday, price moved above that trendline. Horizontal support crosses at that trendline near 36.40. Below there is a gap from 33.5 down to 32.10, and then an additional gap further down from 22.10 to 18.20. If the low is truly in from Tuesday, then first horizontal resistance is at 51.20. After that is the 38.2% Fibonacci retracement from the March 18^th highs to Tuesdays lows at 55.70. If price breaks above there, the next level of resistance is at 58.0.

Source: Tradingview, Forex.com

If the VIX does trade higher to those resistance levels, stocks will have held current resistance now and turned lower. Traders thus will have realized that stocks have gone too far, too fast. However, if the VIX continues lower, then perhaps things ARE getting better???

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.