VIX and Stock Market Volatility

I was so focused on getting to the stock market update in the video, I completely overlooked the very FIRST chart in the video (scroll down for the video below)!

The chart (below) is the VIX Index as of April 16, 2012. You can click it to enlarge it. The “VIX” is the stock market volatility index, sometimes called the “fear” index.

While the stock market has been rising the past three months, the VIX had been churning. The VIX initially dropped to start 2012, and traded in place between roughly 16 and 20 for most of January, February and into mid-March. However, the move in April at $17.50 broke the overhead resistance line and pushed VIX into a positive trend.

So, apparently, stock market volatility is coming back in vogue. The chart has now risen and is very close to approaching the spread quadruple top (highlighted in yellow). If the VIX were to break above 21 (a break occurs at $22), we can expect escalated volatility. Doesn’t mean it will happen!

Point and Figure Chart of VIX

Point and Figure Chart of VIX on 4-16-2012

It’s also interesting to note that this chart is now in a short term positive trend. Looks like the “quiet weeks of mid-January to mid-March” may be a memory.

On my mind:
While the VIX is not a market indicator I use as a deciding factor when managing your money, it’s not helpful to see a move like this.

There’s also the “sell in May and go away” mantra. This could be kicking in, but the indicators would need significantly more deterioration (as we saw in 2010 and in 2011) to really register.

There is also a report of an informal “Presidential Election” year pattern (not the Presidential Cycle often quoted from Stock Traders Almanac). This Presidential Election Year activity historically shows a pull-back in April (right on time), then a rally into the November election (assuming the market LIKES the leading Candidate). We’ll see.

Remember, when the charts change, we WILL change.

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