Stocks sank on Thursday, erasing all and more of the previous day’s rally amid global growth concerns, including Europe’s softening economy. For the day, the Dow Jones Industrial Average fell 334.97 points, or 2 percent, to 16,659.25. The S&P 500 fell 40.68 points, or 2.1 percent, to 1,928.21. The Nasdaq declined 90.26 points, or 2 percent, to 4,378.34.
As selling on Wall Street intensified, the CBOE Volatility Index (VIX) jumped nearly 25% to 18.76 – the highest level since February 2014. Nevertheless, that still below its historical average of 20. Often refers as investors fear gauge, VIX tends to move inverse to stocks and is used to determine the severity of futures moves in stocks. General speaking, a reading above over 30 often associates with some sorts of selling panic while a move below 20 indicates complacency. Below is an update look at a trade in VIX.
Chart 1.1 – CBOE Volatility Index (daily)
Looking at the 3-year daily chart of VIX, we can see that Thursday’s massive selloff had caused volatility to spike to the highest level since late October 2013. Let’s notice that current trading pattern in the VIX is very similar to the 2013 and early 2014, in which the market put in an important near-term low as soon as VIX crossed above 20. Should history is any guidance then the market is at or very close to a tradable bottom.
Over the next few days, traders should monitor trading actions near the 21-22 area. A failure breakout above that level, suggests that recent selloff in stocks is just a pause that refreshes and this bull market has further to go. A close above 22, meanwhile, signals a full blow correction for stocks…Click here to read more.
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