How Do You Spell V-o-l-a-t-i-l-i-t-y? Suddenly, It's VIX

 | Aug 09, 2017 | 10:52 AM EDT
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Just when the pundits declared that volatility was dead because of all the passive investing and indexing, bam! The VIX spiked higher yesterday and today. Traders now are looking back at what Jeffrey Gundlach, DoubleLine CEO, said yesterday on CNBC.

The VIX has been trending lower for months, with brief and short-lived up-thrusts. In the daily chart, below, we can see the down trend and negative slope for the 200-day moving average line. Notice the higher lows from the 12-day momentum study? The lows from May to June to July have been higher and higher even as the VIX has gone lower and lower. This difference is called a bullish divergence by technical analysts. The pace of the decline since May has slowed. In the lower panel the trend-following Moving Average Convergence Divergence (MACD) oscillator also has made higher lows and is crossing above the zero line for an outright go-long signal.

When you give someone the timing and the direction of a trade they still want more. People also want to know where or a price target. In this Point and Figure chart of the Volatility Index on the CBOE, below, we can see that 117.60 is key breakout point and a potential target of 179.20 is projected.

Bottom line: I would look for the VIX to spike to around 16. A close above 16 could mean a more significant decline in stock prices. Keep your seat belts low and tight around your waist.

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