A chart which should be on every trader’s workspace is the VIX, the volatility index based on the S&P 500 and out of the money puts and calls, as it provides a view on future volatility and is therefore often referred to as the fear index. As the VIX falls so equity markets rise and vice versa and so reflects the ebb and flow in risk sentiment.
The weekly chart for the VIX describes the price action for the S&P 500 – the bellwether index for risk appetite and sentiment and is represented here perfectly on the Tradestation platform using the Interactive Brokers feed, where the index has been oscillating in a relatively narrow range, despite some extreme price swings in the cash markets.
As we can see, other than the two extreme highs of early 2018 and 2019, the bulk of the price action is contained below the 30 price point, and there is also an extremely strong platform of support in the 11.00 area as denoted with the support and resistance indicator for Tradestation with the blue dashed line. This support level has been tested repeatedly since April and also reflects the resistance now building across all the primary indices on their respective daily charts, and until this level is breached, the indices will continue to remain waterlogged driven by risk on and risk off sentiment as the trade wars continue with China and begin with Europe.
Much of the recent market euphoria centred on Chinese comments concerning an offer to hold off manipulating their currency as a mechanism to offset tariffs. Whether such a ‘currency pact’ is agreed and holds remains to be seen, and if so, we can expect to see the VIX decline further and return to test the 11 region in due course. Note the trend monitor indicator for Tradestation is also reverting to a bearish tone once more with deep wicked candles helping to drive the index lower. Overhead we have equally strong resistance in the 17.00 area and denoted with the red dashed line of the support and resistance indicator for Tradestation which was breached on Friday and so helping to pressure the index lower.