The Current State of the Market: Analyzing the VIX and VVIX/VIX Ratio
As the world’s top investment manager and financial journalist, it is crucial to stay informed about the latest trends in the market to make informed decisions and provide valuable insights. In this follow-up analysis of our previous report titled “SPX 500: Second sign of downside volatility emerges, odds of medium-term corrective decline increase” published on 1 November 2024, we delve deeper into the current state of the market.
Key Observations:
- The VIX (the implied volatility of the S&P 500) has inched higher above the 20 level in the past four sessions.
- The VVIX/VIX ratio has moved lower since 16 September, suggesting a potential short to medium-term corrective decline.
- Watch the key intermediate support of 5,675 on the S&P 500.
Since our last publication, the S&P 500 has faced challenges as it failed to recapture its gapped down formed last Thursday, 31 October, and its 20-day moving average, both acting as an intermediate resistance at 5,810.
The movement of the S&P 500 is now influenced by various macro factors, firm-based risks, and political events, including the upcoming meeting on 7 November, ongoing US Q3 earnings session, and the outcome of the US presidential election. Market participants are cautiously hedging against potential negative tail-risk scenarios that could impact the US stock market.
VIX Has Remained Above 20 and the VIX/MOVE Ratio Is Still Above Support
Since the week of 16 September 2024, the MOVE Index has surged significantly, indicating volatility in U.S. Treasury futures. The VIX has also inched higher above 20, reaching a closing level of 21.95 as of Monday, 4 November. The VIX/MOVE ratio has continued to print higher lows, suggesting a potential outperformance of the VIX over the MOVE Index.
A breakout above the VIX key intermediate resistance of 23.38 may trigger a negative feedback loop into the S&P 500 on a short to medium-term horizon.
The Current VVIX Value Suggests a Potential Higher VIX
The VVIX/VIX ratio provides insights into future market volatility. A higher movement of VVIX indicates potential volatility in the VIX and the S&P 500. Historical data shows that when the VVIX/VIX ratio declines, the S&P 500 stages corrective declines. The current ratio of 5.56 suggests a potential corrective decline towards the medium-term support of 5,390 if the key intermediate support of 5,675 is broken.
By analyzing these key indicators, investors and market participants can make informed decisions to navigate the current market conditions effectively.
For more information, you can refer to the original post here.
Analysis:
The VIX and VVIX/VIX ratio are crucial indicators that provide insights into market volatility and potential corrective declines in the S&P 500. By monitoring these indicators, investors can proactively manage risks and make informed investment decisions. The recent trends in the VIX and VVIX/VIX ratio suggest a looming corrective decline in the S&P 500, highlighting the importance of risk management in the current market environment. Understanding these indicators can help investors navigate uncertainties and protect their investments in volatile market conditions.