Volatility and S&P 500 performance tend to move in opposite directions. As fear escalates and the VIX prices in higher expected volatility, equity markets sell off. Currently, the VIX is nearing its recent resistance near 30, which is a very high level of expected volatility, one in which we can expect large, sudden directional shifts in stock prices - mostly impulsive moves to the downside. Should the VIX clear 30 resistance, expect S&P 500 support just above 1800 to break. That could potentially lead to more panicked market behavior as traders nerves are frayed. Here's the current look at both the VIX and SPX as we hit the mid-point of today's trading:
If on the short side, it certainly makes sense to at least consider taking partial profits as 1800 is an area the market could once again bounce from. Clearly, a break below price support would be bearish though as volume is extraordinarily high. Prepare yourself for a heavy dose of whipsaw action.
Happy trading!
Tom
