Cyclical Analysis: Let’s see what some indicators derived from the Implied Volatility and Options market on the world’s primary market, the US, can tell us.
By Eugenio Sartorelli – www.investimentivincenti.it
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Let’s start with the classic Implied Volatility Index, the VIX (daily data from January 2025 through to the close on Friday, October 24):
This indicator typically has a contrarian trend compared to the S&P500 Index and, most importantly, makes very pronounced peaks corresponding to market lows, as can easily be seen from the chart; for this reason, it is also called the “fear index.”
Recently, the VIX made a relative high on October 16 (see blue arrow) with values well above 20 points, which is a long-term average. This was followed by a decline, still in progress, with values currently at 16.3 points, levels associated with a more positive sentiment.
The S&P500 Index made a low on October 10 (see red arrow) around 6550 points, then regained strength, making new all-time highs on Friday, October 24.
Let’s also look at another sentiment indicator related to Volatility: the VVIX chart (daily data):
The VVIX Index is related to the Volatility of the VIX Index, on which one can trade futures and also options. The VVIX Index has characteristics similar to the VIX, but it can be an amplifier of Volatility and sometimes a leading indicator.
Here too, the VVIX made a rather high peak on October 16 (see blue arrow), slightly later than the S&P500 low on October 10. Subsequently, the VVIX has declined convincingly and is around its long-term average.
Therefore, this indicator also signals a phase that has returned to being more favorable for a rise in equities and thus favorable for risk (risk on).
Copyright DMF New Media – ETFWorld.co.uk
Reproduction prohibited in any form, even partial
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