• 151 days Could Crypto Overtake Traditional Investment?
  • 155 days Americans Still Quitting Jobs At Record Pace
  • 157 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 160 days Is The Dollar Too Strong?
  • 161 days Big Tech Disappoints Investors on Earnings Calls
  • 162 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 163 days China Is Quietly Trying To Distance Itself From Russia
  • 164 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 168 days Crypto Investors Won Big In 2021
  • 168 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 169 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 171 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 171 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 175 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 175 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 176 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 178 days Are NFTs About To Take Over Gaming?
  • 178 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 181 days What’s Causing Inflation In The United States?
  • 183 days Intel Joins Russian Exodus as Chip Shortage Digs In
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Charts and Commentary

What is one of the Key Elements seen in all Stock Market Corrections?

Market drops and corrections all have one central element ... fear. When fear levels increase significantly, investors go into a selling mode. One of the best measures of fear levels is the Volatility Index (Symbol: VIX).

Key market correction elements of importance on the VIX are:

  1. Its trending direction.
  2. Where the VIX is in relationship to support and resistance lines, and ...
  3. Increasing Fan Lines.

So, this morning, let's take a look at where the VIX and discuss where it is relative to points 1 and 3.

First, the Volatility chart below goes from July 2006 to January 10th. 2007. A Volatility peak was made on July 13th. of last year. That became the point where we draw fan lines from, after the primary trend ended. The primary trend ended on November 24th of last year.

After that, we started drawing fan lines on the VIX. Each time a fan line is drawn higher on the VIX, it depicts a sequential increase of rising upper resistance levels. The higher the resistance levels increase to, the higher the fear level rises for investors.

We have now worked our way up to a Fan Line Resistance Level of 4 as seen on the chart. That means that there is a long term trend in the VIX that is slowly working itself higher. After each Fan Line is broken to the upside, the VIX moves to a new, higher ceiling level of fear. If the trend of increasing Fan Lines continues, we will reach a "critical level" on the VIX where investors will have a shift from confidence and bravery to "fear". When the shift goes into a "fear modality", investors start selling their stocks and we have a pull back or market correction. (Paid subscribers: You can view the exact VIX number where that critical level is reached on your daily update pages.)

We covered Fan Lines, now what about its Trending Direction?

If you look at the December to January 10th. period on the chart, you can see two blue channel lines trending to the upside. Since the December 15th. low, the VIX has been moving up to the channel's resistance line, and then down to the channel's support line. Each time it has done this, it has made a higher/high followed by a higher/low. This is the definition of an up trend. So the short term trend is also moving up.

The bottom line of this VIX action, is that investor confidence is slowly eroding over time. If the VIX trend is not reversed to the downside, then we will surpass the "critical level" where investors will shift to a fear mode.

From a risk evaluation standpoint, as long as the VIX continues its up channel, your risk of losses on your invested capital is increasing.

Please Note: We do not issue Buy or Sell timing recommendations on these Free daily update pages. I hope you understand, that in fairness, our Buy/Sell recommendations and advanced market Models are only available to our paid subscribers on a password required basis. Membership information

 

Back to homepage

Leave a comment

Leave a comment