What Happens When the VIX Gives Us a Sell Signal

The Volatility Index (VIX) is on the verge of generating a broad stock market sell signal.

Unlike buy signals, which happen on average four or five times per year, VIX sell signals are rare. We only get about one each year. And, the length and severity of the sell signals are much different than the buy signals.

VIX buy signals tend to play out with the broad stock market making an immediate, quick upside move. Buy signals can play out in a matter of days.

VIX sell signals take longer to get started, and they tend to lead to intermediate-term declines. For example, we wrote about the VIX sell signal that occurred back in March 2022.

The stock market continued higher for about one week after the signal. But, once the selling started, it continued for several weeks.

The S&P 500 was trading above 4600 in late March 2022. Three months later, it was near 3700.

We don’t have a VIX sell signal yet. But, one could happen any day now.

Here’s an updated chart of the VIX along with its Bollinger Bands…

The VIX generates trading signals when it closes outside of its Bollinger Bands (BB – solid blue lines), and then closes back inside the bands.

Buy signals occur when the VIX spikes above its upper Bollinger Band and then comes back down. Sell signals happen when the VIX closes below the Bollinger Band and then moves back up.

We saw a couple of buy signals earlier this year. But, we haven’t had any sell signals so far in 2025. Though, we’re on the verge of one right now.

The VIX closed below its lower Bollinger Band on Wednesday. When it closes back inside the bands, the VIX will generate its first sell signal of 2025.

And, if this one plays out like the sell signal from March 2022, the stock market could be in for a difficult few months.

Given the strong track record of this indicator, given the bearish seasonal influence that hits the market this time of year, and given all the technical caution signs we’ve pointed out over the past few weeks, investors should be careful not to chase stocks higher into any strength over the next few days.

Best regards and good trading,

Jeff Clark
Editor, Market Minute