VIX Index Starts the Week Slightly Higher as Fed Rate Hike Looms

Summary:
• The VIX index has started the week on a positive note as the markets prepare for next week's Fed rate decision.

The VIX index halted its recent retreat and is currently up 2.44% this Monday. This comes as the US Dollar starts the week on the back foot. 

The Vix index closed the week sharply lower last week after data showed an improvement in retail sales. The expiry of options contracts also propped up the stock markets and kept the VIX index negative. The macroeconomic indices of the last two weeks have been heavily negative for the S&P 500 index, still smarting from its brutal end to H1 2022. The S&P 500 index is in a bear market, losing more than 20% from its January 2022 record high. The index sustained its most considerable first-half loss in 52 years after shaving off more than $8 trillion from its market cap.

The Vix index could see heightened activity as corporate earnings hit the market. The latest inflation data that showed a further increase in the consumer price index sets the stage for further tightening by the Fed on 28 July. This leaves the Vix index in a position of heightened volatility. Further upside in the VIX index will be helped by heightened expectations of a more aggressive Fed move.

VIX Index Forecast

The correction is testing support at the 24.55 price mark, formed by the 2 June/8 July 2022 lows. This test comes after the rejection of the attempted break at 27.80, resulting in the pinbars of 12/13 July and a subsequent slump of 15 July. This current support level breakdown continues the corrective move, targeting 19.93 (20 April 2022 low) and 16.43 (4 January 2022 low). The 13.53 price mark comes into the mix as the next target, having served as a prior low seen on 14 February 2020. The 22 October and 4 November 2021 double bottom at 14.99 may serve as a pitstop. This outlook fulfils the expectation of completion of the double top pattern.

On the flip side, this outlook will be negated if there is a resumption of the uptrend following a break of the 10 May/16 June 2022 highs at 34.88. This move only becomes viable if the bulls take out intervening barriers at 27.80 and 30.37 (23 May 2022 high) along the way. Further targets to the north include 37.39 (24 February 2022 high) and 40.12 (4 May 2020 high).

VIX: Daily Chart