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VIX Goes Red


Do you realize that Thursday had the smallest range in the S&P 500 we’ve seen in nearly three weeks? Is it any wonder the Volatility Index was red on the day?

There will be those who want to make a big deal out of the VIX being red on a day the S&P is red, but to me it’s just one small piece of the puzzle. What I find more interesting about the VIX is that the put/call ratio for the VIX zoomed up to an extraordinary reading of 1.81 on Wednesday.

To review the options on the VIX are generally played by professionals, so we generally do not want to fade them, or be contrary to them. A high put/call ratio for this metric means there was an awful lot of put buying (relative to call buying), which for me translates into folks are betting on a lower VIX.

We have seen such a high reading only four other times in the last year. The two arrows are obvious in that they were bullish for stocks. In April it was bullish for quite a move and in October it was fore a few weeks.

The box on the chart saw two such readings, both occurred at those little peaks within the box. In other words the ensuing days saw a pullback in the market. But if we step back and take a bigger picture view these folks were betting on less volatility (a higher stock market is often accompanied with a fall in the VIX) in that ten day period, and they were right to do so.

Since the VIX was solidly down on Thursday they were also quite correct. Let’s watch multiple readings in the coming days.

In any event, the market saw what I would consider a chop-fest on Thursday, which is good in that it did not manage to give back Wednesday’s gains. All those readings of fewer new lows tells us at least for now the selling is drying up. The issue is that there seems to be very little buying interest and I’m not sure what changes that except a major change of events in the war Russian has embarked on in Ukraine.

Statistically, there wasn’t much change in the indicators, but once again I want to note that the transports were green. I will repeat what I said earlier in the week. With the price of oil soaring and war breaking out, this is one group you would think would be down and yet it isn’t.

In terms of the chart, it is still in a downtrend, only with different types of downtrend lines drawn than we’ve seen in the Invesco (QQQ) and PHLX Semiconductor Sector, as we looked at yesterday. As one who sees head-and-shoulders patterns everywhere, I cannot help but draw this potential bottom one in. It would need to get up and over 15750 just for starters and you can see there is resistance all the way up. But why aren’t they collapsing?

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