The Volatility Index (VIX) is about to generate its first “buy” signal of 2025.
The VIX gave us eight buy signals in 2024. All of them came within a day or two of at least a short-term low in the stock market. And all of them were good for a rally of at least 100 points in the S&P 500.
So, while it has been a tough time for the bulls over the past few days, they can look forward to some positive action once the VIX generates a buy signal – which could happen as soon as today.
Look at this chart…
VIX buy signals occur when the index closes above its upper Bollinger Band and then closes back inside the bands.
Bollinger Bands indicate the most probable trading range for a stock or an index. Whenever a chart moves outside of its Bollinger Bands, it signals an “extreme” condition – which is vulnerable to a reversal in the other direction.
In the case of the VIX, these extreme conditions trigger buy and sell signals for the broad stock market.
The last buy signal happened back in mid-December. The S&P 500 was trading near 5880 at the time. One week later, the index was above 6000.
On Monday, the VIX closed above its upper Bollinger Band for the first time this year. When it closes back inside the bands, we’ll have another VIX buy signal.
Of course, nothing in the stock market is ever guaranteed. If we go back to 2022, we can find examples of VIX buy signals that did not play out profitably – at least, not right away.
For the most part, though, VIX buy and sell signals have an excellent track record. And since the past eight buy signals preceded 100-plus-point rallies in the S&P 500, there’s a good chance this next buy signal will play out profitably as well.
Best regards & good trading,
Jeff Clark