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VIX Index Forecast as the S&P 500 and DXY Diverge

The VIX index continued its rebound as concerns about the economy continued. It jumped to a high of $31.64, which was the highest level since June 17. The index has jumped by more than 40% from the lowest level since August of this year. This rally coincided with a sharp increase of the US dollar index (DXY) and the slump of the fear and greed index.

Market volatility rise

The VIX index has been in a strong bullish trend in the past few weeks as American stocks continued slumping. A closer look at the key indices shows that most of them have collapsed recently. The S&P 500 index has crashed in the past six straight days and isnow at the lowest level since December 2020. 

Similarly, the Dow Jones has fallen by more than 20% from its highest point this year while the Russell 200 has fallen by over 30% from the YTD high. The Nasdaq 100, which is made up of tech stocks, has also continued plummeting.

The VIX index rally continued rising as investors reacted to the latest American consumer confidence data. The data showed that consumer confidence rose to 108 in September, which was the highest level in months. It has risen in the past two straight months. Therefore, these numbers show that the Federal Reserve will continue hiking interest rates in the coming months. As such, the bank could hike by another 150 basis points this year.

The VIX index has risen as investors focused on the strong US dollar. A strong US dollar means that many S&P 500 index companies will report forex exchange hits. This could see companies like Apple and Microsoft report weak earnings in the coming months. For example, while Apple did not hike iPhone 14 prices, the reality is that the prices have risen by double-digits in foreign currency terms.

VIX index forecast

The weekly chart shows that the VIX index has been in an upward trend in the past few months. It has risen in the past three straight weeks. Along the way, the index has formed an ascending channel that is shown in green and moved above the 25-day and 50-day moving averages. The Awesome Oscillator has moved above the neutral level.

Therefore, the index will likely continue rising as investors target the next key resistance level to watch will be at $40. A move below the support at $25 will invalidate the bullish view.

VIX Index