Don't Ignore This Chart!

VIX Over 20 Can Be A Huge Problem

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The Volatility Index ($VIX) is often times referred to as the fear index and fear is a necessary component of bear markets.  So the recent surge in the VIX should not be taken lightly.  We can and do see the VIX spike quickly during bull markets - only to settle down shortly thereafter.  But a VIX above 20 is a common denominator of all bear markets.  Such markets require high levels of fear and the VIX is the tool I use to measure it.  Below is a monthly analysis of the VIX this century with the S&P 500 performance shown beeneath it:

From the chart above, it's pretty clear that when the VIX moves above 20, you must remain cautious as many times this signals bear market action for an extended period.  During the last two bear markets, the 16-17 level on the VIX has been the floor.  From a bullish perspective, you want to see the VIX fall back below 16.  Unfortunately, today the VIX remains on the rise, pushing above 22.  Episodes of powerful, impulsive selling can occur at any time in such an environment.  Cash isn't a bad place to be.

Happy trading!

Tom

 

 

Tom Bowley
About the author: is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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