Im Bärenmarkt entwickeln sich Kurse und der "Angstindex" VIX meist diametral.
Im Bullenmarkt sollte im Idealfall bei immer höheren Kursen auch der Angstfaktor ständig steigen.
Ever heard the age old adage "Wall Street Climbs a Wall of Worry"? Technicians will tell you any sustained move to the upside has to be accompanied by a healthy level of fear.
David Nichols, publisher of 21st Century Alert and an outstanding market technician, believes the market is poised for a protracted 30 to 40 trading day pullback. He argues the lack of fear in the market, as measured by the VIX, will backfire on the bulls in the near future.
The VIX (Volatility Index) is a measure of fear levels in the market. The higher the VIX, the higher the fear. It is compiled using a complicated formula of bids and offers on options, and most technicians love this index. Here's why:
Shown here is a chart of the VIX
overlaid on the S&P 500. The
S&P is shown in green, and the
VIX is shown in red. The
indexes move in nearly perfect
diametric opposite directions.
Put simply, when fear levels
increase, the market goes
down.
The VIX is now at a multi month
low. David Nichols believes any
sustained rally must be
accompanied by higher levels of
fear. Therefore, in order to
continue higher, the market
needs higher fear levels.
As you can see from the chart,
the VIX has recently begun to
turn north. Will the market turn
south in concert with a rise in the VIX? Each time there was an extreme spike both indexes turned in opposition to each other.
The VIX and the SPX moving in opposite directions is typical of a bear market. Therefore, if we were in a bull market, the VIX and the S&P 500 would climb higher together. At minimum, the VIX would be flat at a higher level as the market climbed.
The market has traded up for three straight weeks. It is probably a little overbought and ready for a pullback. There is likely some easy money to be made shorting the market in the near future. Look for a trading alert to short the QQQ's next week if the market shows signs of tiring.
The chart also shows the extremes are contracting, meaning severe volatility is diminishing. This could also be characteristic of the maturing of a bottoming process.
