Complacent markets have often led to major panic selling and significant spikes in the well known Volatility Index known as the VIX. Recent euphoria has been tempered by geo political events, such as the Ukrainian Crisis. But markets around the world continue to be bought on any dip. So far this year any spike in the VIX has quickly been faded, and the S&P 500 is only thirty three points away from the all-time highs.
It appears that market participants continue to ignore any and all news that could be viewed as disruptive to the markets. However, when looking closely, this may not be the case. When analyzing the chart of the VIX one can make a case that the smart money has been slowly accumulating protection. This is telling us that the markets could be entering a sensitive time in which the VIX could have a major spike.
I arrived to this conclusion by looking no further than the recent Financial Crisis of 2007. There is many similarities in what the VIX did then, and what is doing at the moment. The year prior to the crisis of ’07, the VIX made a low of 9.39 that was never taken out in early 2007. The VIX kept slowly climbing up throughout the year until it made a significant move from an early low of 9.87, to a high of 37.50 later that same year.
Last year, the VIX made a low of 11.05 which has not been taken out this year, even as the markets reached new all-time highs. Instead the VIX has been slowly creeping higher with three major spikes this year and continuing to put higher lows in place. Using proprietary tools, specifically the http://www.inthemoneystocks.com, time counts and chart analysis, I expect the VIX to make a significant move to the upside over the next few weeks. This move should result in a VIX break out on the daily, as well as the weekly chart. This would send the markets into correction mode and possibly keep away the buy the dip mentality for months to come. For educated investors and active traders, this is a signal that cannot be ignored.
Join me and other Pro Traders at the Elite Round Table; learn how we’re positioning ourselves for this possible VIX Super Spike and get the positions we enter live.
Pro Trader, Elite Round Table