VIX Index Set to Crash to $16 as Fear and Greed Rebounds

·Jul 25, 2022, 10:21 BST

The VIX Index dropped for the fourth straight day as investors reflected on the upcoming corporate earnings and interest rate decision by the Federal Reserve. It dropped to a low of $23, which was about 42% below the highest point this year. The fear and greed index is approaching its neutral point.

Tech earnings and FOMC decision

The VIX index is one of the most closely watched indices in the market since it provides more information about the volatility in the market. In most cases, significant volatility is detected when the index rises above 35. As such, a closer look at its performance this year shows that it has remained below this level for the most part.

The key catalysts for the VIX index this week will be the upcoming interest rate decision by the Federal Reserve that will happen on Wednesday. Analysts expect that the bank will deliver another giant hike of about 75 basis points.

With inflation at elevated levels, some analysts expect that the Fed will surprise by a blockbuster 100 basis point hike. Still, there are early signs that inflation may have peaked, considering that gasoline prices have pulled back sharply from the year-to-date high.

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The VIX index will also react to a slew of earnings that are scheduled for this week. Companies like ICICI Bank, Infosys, Tata Motors, and Kotak will publish their results in India. In addition, companiess like Lloyds Bank, Barclays, Shell, Sthree, Unilever, Compass Group, and Fresnillo will publish in the UK.

Finally, big tech companies like Amazon, Apple, and Alphabet will publish their results in the US. According to FactSet, 21% of all companies in the S&P 500 index have published their quarterly results. These results have recorded their worst earnings growth since 2020.

VIX index forecast

The daily chart shows that the CBOE VIX index found a strong resistance between $35 and $39 this year. This is a signal that the stock sell-off has not had significant volatility this year. Recently, the index has dropped below the important 25-day and 50-day moving averages, while the Relative Strength Index (RSI) has continued its bearish trend. It also managed to move below the important support level at $23.72.

Therefore, the index will likely continue falling as sellers target the next key support at $15.93. This view will be confirmed if the index cruises below the support at $18.50. Conversely, a move above $27 will invalidate the bullish view.