Not much time to post, lately. But this jumped out at me and thought it would be of interest to you guys.
All the best,
Isopatch
<We have just witnessed a 'death cross' in the market's fear indicator
By Lawrence Lewitinn
3/10/16
finance.yahoo.com
(extended excerpt)
The CBOE Volatility Index ( ^VIX) might be back down to the upper-teens. But the so-called “Fear Index” just made its own version of a “death cross,” according to Russell Rhoads, head of education at the CBOE’s Options Institute.
That doesn’t bode well for the market.
In technical analysis, a “death cross” usually occurs when the 50-day moving average falls below the 200-day moving average. Technicians see this at as sign that things will get worse.
But the VIX, which measures expected volatility over the following month in the S&P 500 ( ^GSPC), tends to move in the opposite direction as the overall market.
“The VIX is considered a ‘fear index’ with respect to option trading on the S&P 500,” explained Rhoads. “When traders are concerned about downside in the equity market, as indicated by the S&P 500, they tend to buy put index options on the S&P 500 which pushes the implied volatility higher.”
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For that reason, Rhoads sees the VIX’s shorter-term moving average move above its longer-term moving average – which would normally be viewed as a bullish move for any other security – as bad news for the market. In the past several days, the VIX’s 1-year moving average pushed above its 5-year average.
“The last time this happened back in 2007, a year later, the S&P 500 was down about 40%,” he warned. “For the overall equity market this could be a bearish sign.”
Other signs are also worrisome.
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Rhoads also graphed the CBOE’s various volatility indices in a fashion similar to the way yield curves are drawn for the term structure of interest rates. While shorter-term volatility measures ( ^VXST and ^VIX) are at or below their 2015 averages, longer-term volatility indices ( ^VXV and ^VXMT) are elevated.
“Those can be taken as a market forecast that we're going to see increased volatility over the next three to six months or farther out in the 2016 calendar,” cautioned Rhoads.>
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