The Volatility Index (VIX)
is also recognized as a coincident indicator.
As a matter of fact, VIX can be adopted as a trend-confirming barometer
as well, since it is trending against the stock market.
In the range bound stock
market, the VIX is able to uncover sentiment excess, which can be employed to
prophesy the market reversals.
Source: Line Graph Outline form Yahoo Finance. Actual data compiled by Authors
In the current forceful
bull market, the VIX stayed in the depressed level most of the time. The spikes
occurred once in a while, but the VIX recovered immediately. There was no
apparent uptrend or downtrend tendency.
In January 2013, the range for the VIX shifted to lower levels for both
upper bound and lower bound.
The above chart discovers that the
VIX index corresponds inversely to $SPX when market extremes occur. It reveals
that in the past year, the VIX index ranged between 12 and 22. It had several spikes and troughs. The VIX stayed between 12 and 16 most of time
due to rampant market momentum.
The VIX spiked to 22 on 12/28/2012,
corresponding to the fact that the market was disappointed with the fiscal deal
negotiation. The S&P surrendered 15 points that day. The market exhibited
fear and anxiety. The VIX is often
referred to as the “fear index” by its very nature. Fortunately, the struggling and battling
fiscal deficit deal opponents reached an agreement. The market had risen steadily. The VIX reading moved to a lower level since
then.
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