The VIX's overall trend, revealed by trends of price, leverage, and time, defined and are discussed in the COT Matrix for subscribers.
The market warned you long before continuation of the rally! Originally posted on 02/03.
How high must stocks go before the bearish calls citing a low VIX are ignored by the majority?
The predictive power of the VIX lies in concentration and direction. Concentration, either extreme high or low readings, helps us quantify risk. For example, today's relative low VIX defines complacency, while readings above 20 define a backdrop of fear. Complacency and fear are usually bearish and bullish for stocks, respectively.
Timing stocks, however, requires more than an understanding of concentration. Direction, the flow of money in and out of the VIX, is generally ignored in basic VIX analysis. Experienced traders know low VIX readings can linger for months or years before an uptrend falters. Bears focusing solely on concentration can lose a lot money shorting a low VIX.
While credible trading sources are predicting trouble ahead for stocks because of low VIX and seasonality, they fail to recognize that direction, sentiment, long-term seasonality has been favoring continuation of the rally for months. Disciplined bulls that reduce risk during low VIX periods should hold their stock positions as long as volatility contracts. Volatility contractions are highlighted by green boxes (chart 2).
Volatility is tracked for subscribers in the Matrix.
Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.