Is Volatility About to Blast Off?


I wrote here yesterday about using VIX/VXX as a timing device to predict the end of the bull market. Below is a companionable view posted by ‘Seneca” in response. We both see “something big,” probably sooner rather than later. But we differ as to whether VXX, an ETF that tracks short-term S&P volatility, has already begun an ominous ascent. I expect it to go at least somewhat lower, to either of two precise targets given below in my VXX tout, before bottoming in record-low territory. If so,that would be imply a continuation of the bull market, at least for a while, by way of ratcheting rallies or steady drift. Seneca’s technical interpretation would suggest that VXX may already have gotten off the launching pad. Here’s what he wrote:

“The breakout in VIX in early to mid-April saw nine consecutive closing days over its 200 DMA. This was a signal toward value levels that are now benchmarks to observe [going forward]. The recent, slightly higher highs are ‘overshoots’ to the larger degree in market timing. VIX is not really about volatility as many see it, but more about [traders anticipating] little or no volatility’. This is being confirmed as VIX climbs higher along with equity prices, even though the increases have been small. VIX has been on a death march, but [change is augured by the fact that] it has closed over its 50 DMA for the last seven trading days; at the same time, equity values are perceived as being at a comfortable level. In reality, nothing could be further from the truth.”

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