The VIX index has been in a strong bullish trend in the past few weeks amid a high likelihood for a more hawkish Federal Reserve. It rose to a high of $34.12 in September, which was its highest point since June 15. It was also about 80% above the lowest level in August. The fear and greed index is hovering near its extreme fear level.
Hawkish Federal Reserve
The VIX index is a leading measure of volatility in the market. It was created by teams from Goldman Sachs and CBOE to look at the positioning of options data in the S&P 500 index. In most cases, it tends to have an inverse relationship with American equities.
American stocks have had a mixed week. After going parabolic on Monday and Tuesday, indices like the Russell 2000, Dow Jones, and Nasdaq 100 have all retreated in the past few days. This performance happened as investors focused on the potential for a Fed pivot and the decision by OPEC and its allies.
Some analysts believe that the Fed will start signaling that it will pivot in the coming meetings. Besides, it has already hiked interest rates by 300 basis points this year. Still, Fed officials who talked this week, including Neel Kashkari and Raphael Bostic warned that now was not the time to start pivoting. This explains why stocks have pulled back sharply in the past few days.
Meanwhile, the VIX index has risen because of the strong US dollar. Analysts believe that the soaring DXY index will affect profits of top American blue-chip companies like Apple, Microsoft, and Nvidia. That’s because these companies generate most of their income internationally. As such, converting these profits to USD will be a bit tough.
The next key catalyst for the VIX index will be the upcoming American jobs data scheduled for Friday. Analysts expect that the economy added more than 200k jobs in September while the unemployment rate remained at 3.7%. Meanwhile, a trader in the options market has placed a bet that the VIX will soar to 150 in the next few months.
VIX index forecast
The four-hour chart shows that the VIX index pulled back slightly this week as American stocks soared. It dropped from last month’s high of $34.12 to a low of $28.64. The index remains above the 25-day and 50-day moving averages. It has also moved above the ascending trendline shown in green while the MACD is above the neutral level.
Therefore, the index will likely continue rising as long as it is above the moving averages. If this happens, the next key level to watch will be at $34.12 followed by $35. As such, this could see stocks continue falling. The stop-loss of this trade will be at $27.