A Look at the CBOE Market Volatility Index

By: Ed Carlson | Tue, Jul 22, 2014
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The CBOE Market Volatility index, or VIX, is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. The VIX moves inversely with equities so that when equities are rising, the VIX is falling and vice versa.

Important (and not so important) highs in equities usually arrive with a positive divergence in the VIX. A positive divergence occurs when the VIX leaves behind a higher low while equities print a higher high. We would normally expect the VIX to print lower lows (per the inverse relationship) as equities rally higher.

The VIX also appears to have a seasonal pattern. While not perfect, the VIX tends to rally during the period between the first of July and the end of October. These VIX observations seem to confirm the Lindsay forecast given in last week's article.

CBOE Market Volatility Index
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Ed Carlson

Author: Ed Carlson

Ed Carlson
Seattle Technical Advisors.com

Ed Carlson

Ed Carlson, author of George Lindsay and the Art of Technical Analysis, and his new book, George Lindsay's An Aid to Timing is an independent trader, consultant, and Chartered Market Technician (CMT) based in Seattle. Carlson manages the website Seattle Technical Advisors.com, where he publishes daily and weekly commentary. He spent twenty years as a stockbroker and holds an M.B.A. from Wichita State University.

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