- Summary:
- The VIX index, also knows as the “Fear Index” is resting comfortably above the July low of 11.7, and declines might be limited.
The VIX index, also knows as the “Fear Index” is resting comfortably above the July low of 11.7, and declines might be limited.
The level of the VIX index gives us an indication of how much it costs to insure against future S&P 500 volatility, and it can, therefore, be viewed as an indicator of the stress levels of investors.
When stock markets are trending slowly upwards, like in the last few weeks, very few investors bother to hedge via the VIX or using options; thus the VIX index level is low. While when the markets slide sharply investors will rush to hedge via the VIX index, and the index gains strongly.
It difficult to use it to predict market tops, but by looking at the chart below we can see that investors are very comfortable right now, and gains in the VIX are limited to the July low. Only if the index would break below the July low could the index reach the August 2018 low at 10.20. However, with geopolitical tensions being high and could flare up anytime, I think it will be hard for the VIX index to trade much lower. It might, therefore, indicate that the upside in stock markets could be limited. Another tool that we use to predict is the CNN Fear and Greed index.