A week ago, I mentioned that the key for the markets
would be to watch the VIX.
The VIX is the volatility index and is oftened called
the fear index.
As I have mentioned before, the VIX will run opposite
So, as the VIX drops, the markets should head up.
And as the VIX moves up, the markets will drop.
What I mentioned last week was that you want to
watch the 12.50 level on the VIX.
As it turns out, the VIX stopped at 12.54 on the 20th.
From there it rallied up to a high of 17.19 on the
That was a move of 37% in 5 days.
At the same time, the S & P 500 hit a high of 2,114.86
and dropped to a low of 2,045.50 on the 26th.
The S & P 500 dropped 69.36 points in 4 days off the
signal from the VIX.
This is why it pays to keep an eye on the VIX. And
know where the key levels of support and resistance
should be for it.
How could you have traded this?
Certainly you could have bought puts on the SPY.
Or the DIA for that matter.
Another way to trade the move is buy calls on
The VXX moved up $2.48 off the signal.
That was enough to see the April 2nd-$27 call on the
VXX move from a low of under 31 cents to a high
of 91 cents.
Not too bad of a return.
As I write this, the VIX is heading down and is trading
The question now is this. Will the VIX get under the
12.50 level on this drop?
If the VIX bounces up off the 12.50 level, you can expect
this rally to stall.
Should the VIX continue down, I suspect we will see
new highs in the markets. The obejective for the S & P 500
Watch the VIX and plan accordingly. But don’t say you
have not been warned.
I hope this has been helpful.
And remember that this week is a short trading week with
the markets closed on Friday for Good Friday.
Until next week, trade safely.