The Market Bottom, For Now – VIX & SPX Review 10/23/2022

The market started moving sideways this week, penetrating the secondary downtrend line to the upside rather than following the trendline lower.

It seems the market wants to rally but likely will remain in a range between 38.2% and 50% Fibonacci Retracement lines.

VIX and VIX9D seem to indicate that people don’t believe the Friday rally will continue.

VIX Related Indices

VIX9D remained below VIX throughout this week. VVIX also dropped significantly which means hedging using VIX was less this week compared to last.

There was a CPI data release last week so it makes sense hedging activities were higher last week.

VIX and VIX9D remained elevated on Friday despite a huge SPX rally. This indicates people are still hedging heavily and do not believe the rally will continue.

The FOMC meeting is coming up in early November so we should see the VIX level increase towards the end of the coming week.

In case you are interested, here is more information about why it’s a good idea to monitor these VIX indices.

The automated VIX table for these calculations is available here.

S&P 500 Technical Analysis

SPX had a large rally on Friday and it is now above the 25 Days Moving Average. The shape of the 25 Days Moving Average is also flattening so it seems market sentiment is changing somewhat.

The secondary downtrend line is now broken but we are still very much in the bear market since the primary downtrend line is still intact.

It seems the market wants to rally but likely will remain in a range between 38.2% and 50% Fibonacci Retracement lines (using the weekly SPX chart with Fibonacci Retracement lines drawn from the 2020 low caused by Covid19).

VIX and VIX9D indicate the volatility will continue until we get more clarity from the Federal Reserve on how they plan to increase the interest rate moving forward.

My Personal Thinking

The market will likely move sideways until November but in a wide range (based on what VIX is telling us).

The 38.2% and 50% Fibonacci Retracement lines should act as resistance and support lines respectively. My thinking is the market will unlikely go beyond these two lines until the FOMC meeting.

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Tony

I have been trading options since 2010 and have been testing and experimenting with various trading styles. Fundamental Analysis based, Technical Analysis based, Trend Following, Day Trading, Swing Trading, etc.

My primary option trading strategies incorporate volatility and I am constantly experimenting with various trading strategies to improve my PNL.

I hold two Master’s degrees (MSc and MBA) with career experience as a cancer research scientist and a digital marketer.