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$VIX: How Low Can It Go?

This week's Chart of the Week video looks at the $VIX and asks: How Low Can It Go? So let's get technical.

This is a weekly chart of the SP500 with the $VIX in the lower panel. The black dots over the $VIX prices bars are key pivot points that identify turning points not only in the $VIX but in the SP500, which moves inversely to the $VIX data. From 2011 thru 2013, when the $VIX got below a value of 15 the equity market reversed lower. Obviously, a complacent market is no time to be a buyer of equities.

Starting in 2013, the line in the sand at least when it came to the $VIX and selling was moved lower. $VIX values less than 13 seem to coincide with selling. Or price reversals take place when the $VIX got below 12.

So now we have the $VIX trading at 15.85. There is room for it to move lower before another reversal and this would obviously see equity prices move higher in the short term. However, for the market to really take off, we would need to see the $VIX break out or break below this cluster of key pivot points. This would suggest a new range for the $VIX and entail a significant blast off in equity prices.

Considering the events and uncertainty facing this aging bull market over the next 2 months, what is the likelihood that there will be a "breakout" in complacency?

There is a wall of support for the $VIX between a value of 12 and 13. This is where selling in equities has taken place in 2013. A break below this level would likely coincide with significantly higher equity prices. From this vantage point, this seems like a monumental feat.

This has been Guy M. Lerner with your chart of the week video brought to you by TacticalBeta Investment Advisory Service.

 


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