The CBOE Volatility Index Has Likely Bottomed
Posted in CBOE Volatility Index (VIX) on September 27th, 2009 by admin – Be the first to commentBy Jim Donnelly, Olson Global Markets
Following months of a steady recovery in stock prices, the CBOE Volatility Index (VIX) tested and held two forms of trend line support at the 22.20 level on weekly charts. Oversold conditions are now present on both weekly and longer-term monthly charts, which suggest that a “bottom” in the VIX has likely been reached.
Moreover, since the relationship between the S&P 500 Index and the CBOE Volatility Index (VIX) has been an inverse one, a near-term “top” in the S&P 500 Index may have been reached as well. Thus, weaker equity prices could result if this relationship holds.
Although better-than-expected earnings reports have largely fueled the recovery in the S&P 500 Index, a battle in Congress over healthcare reforms, a call for more troops in Afghanistan and a potential showdown with Iran over its surprise revelation of the development of a second nuclear facility could rattle the equity markets over the intermediate-term.
Weaker than expected readings on both housing and manufacturing also cooled investor enthusiasm for stocks last week. Profit taking in front of this quarter’s end (on Wednesday) as well as the anticipation of Friday’s jobs report could further the tendency to trim positions until clearer reads on both the economy and the geopolitical climate present themselves.