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Cboe Volatility Index (VIX)


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Cboe Volatility Index (VIX)

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  #1 (permalink)
Symple
Zuerich / Switzerland
 
 
Posts: 472 since Sep 2021
Thanks: 580 given, 1,145 received

When "Cboe Volatility Index (VIX)" is above 32, then future index traders are required to be very attentive, as a value of 32 and above signals a possible large down move risk in the index markets. At current moment we are around those level and if it rises the impact can be disastrous in a worst case.



If you may have no idea what this Index is about, then here we go: https://www.investopedia.com/terms/v/vix.asp

Symple

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  #2 (permalink)
Symple
Zuerich / Switzerland
 
 
Posts: 472 since Sep 2021
Thanks: 580 given, 1,145 received

Here is a small live update which illustrates the significance of "VIX". Just look at how many points the market has fallen, specific in the US, again from my last post, after we are now already at the level of over 34 and this on the same day. Your choice how you want to use this indicator, but the information is given here.





Most simple source for future charts: https://finviz.com/futures.ashx

Symple

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  #3 (permalink)
Symple
Zuerich / Switzerland
 
 
Posts: 472 since Sep 2021
Thanks: 580 given, 1,145 received


The level of 32 is as it is and addressed by me. But the following is now more experimental, because I, even in my active time, have never looked at the VIX through "Chart Patterns" and then compared it with the current markets. The idea came to me yesterday. Let's see how this turns out with this "Head and Shoulder Pattern" in the VIX.





And then today these huge candles on the hourly charts in the following stock indexes. Rarely seen such huge candles on these charts in this time frame in the past.



It all seems related to the following: https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/11/statement-by-president-biden-on-consumer-price-index-in-april/

Symple

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  #4 (permalink)
Symple
Zuerich / Switzerland
 
 
Posts: 472 since Sep 2021
Thanks: 580 given, 1,145 received

Following is an update to the above idea. This six days later (17 May, 2022). The whole pattern "Head and Shoulder" has fully formed and shows also on the "VIX" chart its full effectiveness. Looks great.



On the next picture you can see that the markets always need some time until they react to the continuous change in the "VIX". In this example, you can see that after the "VIX" went constantly down, the markets reacted after two days and changed direction. How to see?

Simply pay attention to the individual candles from the bottom to the top and on the "VIX" from the top to the bottom. When the US markets change direction, the "DAX" and the "Euro Stoxx 50" follow this, to name just two of the largest markets in Europe. In this example they are even faster.



To the today's conclusion still another picture which speaks for itself. It is the hourly chart and the proof that there is a clear correlation between the "VIX" and the market direction in the indices.



Symple

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  #5 (permalink)
 ZviTradingCoach   is a Vendor
 
 
Posts: 34 since Dec 2020
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Be cautious on looking for chart patterns on the VIX.

Classical chart patterns are visual interpretation of demand and supply dynamics.

Thus, when reading them, the underlying assumption is that you are looking at a directly traded market, which is driven mainly by its own supply and demand. Then and only then do they mean anything.

This is not the case in the VIX. For example, even though VIX is normally bound between 10 and 30, there is no "support" or "resistance" (in their classical sense): no large interest is "accumulating" the VIX at 10 or "distributing" it at 30. It's just the math of calculated volatility in the markets, that tends to hit extremes. So the basic idea behind the H&S chart pattern and the reason why it works - is invalid here. Of course it may work occasionally, but it's pure chance.

As an extreme example, and just to make the point, you could look for the same chart patterns on an ECG (Electro CardioGram) chart... and there is a very good chance you would find quite a few. But you wouldn't expect the ECG chart to turn down after a head and shoulders...

I'm not saying that charting the VIX and seeking patterns is wrong: just that the patterns seeked need to make sense in the VIX context (i.e. such that predict volatility expansion/contraction behavior) - and the good ones are likely to be different in nature than those that predict supply/demand changes.

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  #6 (permalink)
Symple
Zuerich / Switzerland
 
 
Posts: 472 since Sep 2021
Thanks: 580 given, 1,145 received

@ZviTradingCoach

Thanks for your comment. So far I agree with you. As you can see in the third post of this thread, I spoke about an experiment as I not expected it to work out. But at the end, the pattern by itself showed its beauty at its best, regardless how it is classified and used in classical charting. To me this is less important in this specific case. I have shown in an other thread my understanding for the classical use of it.

Most important point for me of all is the mentioned correlation. (It is the hourly chart and the proof that there is a clear correlation between the "VIX" and the market direction in the indices). All the rest is each ones choice, how ever experimental or what ever each and one want to use.

Symple

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