Cyclical Analysis: Analysis of some indicators derived from the US Implied Volatility and Options market.
By Eugenio Sartorelli – www.investimentivincenti.it
Copyright DMF New Media – ETFWorld.co.uk
Reproduction prohibited in any form, even partial
Let’s start with the classic Implied Volatility Index, the VIX (daily data from January 2025 up to this afternoon’s values, November 20th):
This indicator has the typical contrarian trend relative to the S&P500 Index, and most importantly, it makes very pronounced peaks corresponding to market lows, as can be easily seen from the chart; for this reason, it is also called the “fear index.”
Currently, the VIX is clearly rising from its low on November 1st (see blue arrow), with values moving from 17.3 to the current 23.7; thus, well above 20 points, which is a long-term average and a psychological threshold. Note how the current VIX values are similar to the peak reached around mid-October.
Simultaneously, the S&P500 Index made a high on November 11th (see red arrow) and is currently correcting. For now, fears of further declines in the index persist as long as the VIX remains above 20 points.
Let’s also look at another sentiment indicator related to Volatility: the VVIX chart (daily data):
The VVIX Index is linked 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.
The VVIX has been rising sharply from its recent low on November 11th (see blue arrow); however, for now, it has not made highs above the recent ones from mid-October. This indicates that fears of strong increases in Volatility, with consequent sharp declines in the S&P500, are currently quite contained.
In conclusion, fears of further S&P500 corrections remain tangible, but for now, they remain contained.
Copyright DMF New Media – ETFWorld.co.uk
Reproduction prohibited in any form, even partial
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