Despite the recent bearish picture for equities in general the VIX on the daily chart continues to trade in a relatively narrow range as it continues to test the 19.50 level with a well defined level of price resistance now being built in this area, and any break above this level in due course, will send equity markets, and other risk assets, sharply lower as a result.
The daily trading indicators continue to remain firmly green despite the recent sideways price action, and with the daily trend also continuing to climb higher, the fear index continues to rise. This positive outlook is also reflected in the associated volumes with both the daily and the three day chart showing strong buying in both timeframes. The only indicator which has yet to change is the trend on the three day chart, which remains firmly white, and in congestion, and it this timeframe that holds the key for equities over the next few weeks.
If this trend does indeed transition through to bullish, then we we will a sharp sell off in the equity markets, as the VIX climbs well beyond the current area of price congestion in the 18.00 to 20.00 region with an initial test of resistance in the 21.50 area and then on towards the 24.30 and possibly even the high of late May at 27.73. However, if the three day trend remains white and fails to transition, then we are likely to see the current price level hold, and a consequent pullback in due course, with a consequent recovery for equity markets and risk assets as a result.
By Anna Coulling
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