The Volatility Index (VIX) has been cut in half over the past month. But it’s still the top-performing index of the year so far. And it looks ready to surge higher again.
The VIX started the year below 10. That’s a historically low level of volatility – which, given the relatively quiet action in the stock market for all of last year, seemed appropriate. But, as I warned back on January 1…
[L]ow levels of volatility are always followed by higher levels of volatility. That’s why I suspect we’ll have lots of opportunities to profit off of wild movements in the VIX in 2018.
As it turns out, the VIX closed at its lowest level so far this year on the following day. It marched steadily and methodically higher all through January. Then, as sellers clobbered the stock market in early February, the VIX spiked to 39.
Yesterday, the VIX closed just below 19. That’s down 50% over the past month. But it’s still 90% higher than where it started the year. And, by the look of the following chart, it looks like volatility is ready to spike higher again…
When the VIX spiked higher in early February, it was trading well above its 50-day moving average (MA). And all of the various technical indicators you see on the chart jumped into “extremely overbought” territory.
Since then, the VIX has moved back down towards its 50-day MA – which should now serve as support. In other words, the VIX should hold above the 16 level. At the same time, all of the technical indicators have recycled back to neutral. So, there’s plenty of energy stored up in these indicators to fuel a move higher.
Of course, a higher VIX usually accompanies a lower stock market. So, all of this lines up with my argument that the S&P 500 will soon retest its 2581 closing low.
To me, it looks like the VIX could be headed higher – soon. Traders ought to prepare for it.
If you’ve profited off the market’s bounce over the past few weeks, then consider taking some gains off the table, or at least tightening stop losses on those positions. Aggressive traders should consider adding some short exposure.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Today, positive feedback from Delta Report readers continues to pour in…
Hi Jeff, I’ll be the last to say I really understand options or what you do, but I understand what you say about your approach and I appreciate your openness, your obvious desire to educate, and very much your approach to consistently generate profits. (Though I haven’t been able to participate, you don’t want to know the details, I will have to trade in the near future in order to have a retirement income) I read all your Delta Report and Market Minute info with great interest, anticipating my future participation. I’m glad you are there for me. I’m learning and, soon to follow, more actively.
Thank you sincerely and don’t let anyone frustrate you. You’ve been in the business long enough to know what you are doing, even with everything suddenly “wacky.” I doubt there are more than a handful who can handle this market.
– Vera
I am 70 years old and just retired from the hospital. I did some research on you and am very impressed! When you were at your previous publisher, I purchased your short program and still have your pen supplied in the kit. I am cautious so will be trading your alerts. Thank you for letting me know when it is a conservative trade!
– Crystal
I’m new to your service as of December, I have traded mainly options with mixed results over the years. I appreciate your market analysis every day, it’s nice to have explanations for why and why not to make a trade based on market sentiiment. I realize no one is 100% ever, and as I read the gentlemen’s letter to you the other day, blasting you for not being aggressive enough, etc. I just thought to myself that this person needs to trade on his own. I read all your commentaries the last couple weeks and on my own still played, minimally, some put and call plays on the S&P that paid well.
My point here is I do take all you say into thought, still, I saw an opportunity to play some short-term trades but it was my decision to do so, my risk with money I was willing to lose. I do wait for your calls but I’m also willing to still play a bit on my own which I hold no one responsible and has worked out to be profitable, I do though keep these to a minimum because my goal is to understand more how the market varies and trade accordingly. Thanks Jeff, keep up the good work!
– Ken
As always, keep sending your comments, questions, and trading stories right here.