The VIX is Signaling an Imminent Rally
Apr 27th, 2009 | By Charles Delvalle | Category: Chart of the DayAs long as there’s fear in the marketplace, stocks can’t sustain a rally. Investors simply get too scared of holding onto their positions for long periods of time. They think the market might sharply drop again. But if fear is subsiding, then stocks are able to move higher. Investors begin buying on the dips and there’s a willingness to put more money into the stock market.
That’s why I love the CBOE Volatility Index ($VIX). The VIX is a measure of various S&P 500 index options.
So when the VIX moves up, it means more people are making bearish bets, and usually the stock market drops.
Right now, the VIX is not only moving down, but confirming a downtrend.
As you can see from the chart above, 40 has been a very important support point over the past year for the VIX.
It hit 40 once at the beginning of the year, once before February and once again in the middle of March. Each time, the VIX would move higher and the stock market would push lower.
But three weeks ago that all changed. The VIX managed to break under 40 by a significant margin. Then, over the past two weeks it went back to 40 and tested its new found support.
The VIX failed support and headed back down.
This means that the stock market should have more fuel, as far as investor optimism is concerned, to push higher still.
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Charles Delvalle is a self-taught market-timing professional and value analyst who's followed and invested in the market for the past ten years. He uses a unique combination of technical and fundamental research to pinpoint rapid profit opportunities with stocks and options.
Charles is also a staunch contrarian and takes pride in finding undervalued sectors and discovering undervalued, cash-rich companies. He frequently mocks government stupidities and points out the "inaccuracies (or lies, take your pick) that government reporting frequently dispels as "truth".
