Logo Background RSS

Advertisement

Technical Update: What Is Volatility Telling Us?

  • Written by Syndicated Publisher 65 Comments65 Comments Comments
    October 7, 2011

    Below are a number of charts which I believe offer some good insight to volatility and what is next for the markets. No magic bullet here, purely a play on the most probable outcome based on the chart patterns.

    Vix VS Skew

    I posted this chart on Thursday and a few had a hard time seeing the inverse correlation between the Skew and the Vix. Two important points I want to make with this chart.

    Point 1 – look at the three red boxes showing the correlating trends (emphasis on trend). Notice the final red box and how the trend is lower (i.e. Vix higher).

    Point 2 – notice how a similar divergence occurred between the Skew and the Vix right before a major jump in the Vix (now and where the arrow is drawn). That is why I say an imminent move higher in the Vix is highly probable.

     

    The next three charts show a repeating pattern between now and early August before the big equity decline.

    Chart 1

    This shows the current divergence between the SPX and the Skew

    Chart 2

    This shows the same divergence on August 4, 2011.

    Chart 3

    This shows what the SPX did over the next two weeks.

     

    Bottom Line

    Take an 8% rally over 14 hours on nothing but short covering, a Vix due to pop, divergence on the skew and you have the recipe for a large move lower in equities. Again no magic bullet but the probabilities would say this is the most likely outcome.

    Images: Flickr (licence attribution)

    About the Author

    Macro Story is designed as a one stop source for all of your macro related news and data.  From credit markets to economic data to geopolitics, you will find it all in a simple and organized fashion.  Content is presented in a format that allows you to read as little or as much as prefered.  Whether your goal is to do advanced research, a simple market overview or to become educated on macro subjects, the site has been designed with you in mind.
    Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInPin on PinterestShare on StumbleUponShare on RedditShare on TumblrDigg thisBuffer this pageFlattr the authorEmail this to someonePrint this page

Advertisement

Closed Comments are currently closed.
Real Time Web Analytics