The VIX Fear Factor Breaks Out and Here’s What You Need to Know

VIX, the CBOE S&P 500 Option Volatility Index, also known as the “fear  indicator,” breaks out.

The VIX index is up 54% from its March 26th low and today registered a point and figure chart “double top breakout” which is a strong “buy” signal and the index now has a price objective of 31.5 which is 43% above today’s closing price.

In the chart of VIX above, we can see today’s print and the new price objective.  Also, the index is above its blue bullish support line which puts VIX in a bull market using point and figure charting methodology.

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This is potentially bad news for equities markets as VIX oftentimes moves opposite to stock prices, rising as stock prices decline and volatility increases.

Also, readings of 20 and higher are considered bull market territory which also points to higher VIX, lower stock prices ahead.

Bullish price objectives are based on the strength of the underlying move and offer only a broad target of where prices may actually go and need to be constantly monitored for changes, however, today’s break higher confirms previously bullish signals for VIX and this most recent move.

VIX ETF Update: 

Volatility Index – New Methodology (VIX): Index: 21.97, +0.46% 

iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX): +5.3%, This ETN is designed to track volatility in the markets as measured by the Chicago Board Options Exchange Market Volatility Index (CBOE Index), a popular measure of the implied volatility of S&P 500 index options.  The CBOE Volatility Index is also known as the “fear” index or “fear” indicator in markets.  The iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) prices itself off of the average and implied volatility of the first two months of futures contracts of the S&P 500 Index.

VelocityShares Daily 2X VIX Short-Term ETN (NYSEARCA:TVIX): +8.8%, This ETN is designed to track 2X return on volatility in the markets as measured by the S&P 500 VIX Short-Term Futures Index.  The S&P 500 VIX Short-Term Futures Index measures the volatility of the S&P 500 Index via futures contracts as traded on the CBOE.  The CBOE Volatility Index is also known as the “fear” index or “fear” indicator in markets.

iPath S&P 500 VIX Mid-Term Futures ETN (NYSEARCA:VXZ): +3.58%, This ETN is designed to track volatility in the markets as measured by the CBOE Volatility Index futures contracts.  The CBOE Volatility Index is also known as the “fear” index or “fear” indicator in markets.  The iPath S&P 500 VIX Mid-Term Futures ETN (NYSEARCA:VXZ) is priced from the average volatility of the 4th through 7th month futures contracts of the S&P 500 Index as traded on the CBOE.

S&P 500 Dynamic VIX ETF (NYSEARCA:XVZ): +1.69%, This ETN is designed to track volatility in the markets as measured by the S&P 500 Dynamic VIX Futures Total Return Index.  The S&P 500 Dynamic VIX Futures Total Return Index seeks to combine results of volatility of the S&P 500VIX Short-Term Futures Index Excess Return and the S&P 500 VIX Mid-Term Futures Index Excess Return to create an accurate market volatility reading, as measured by the CBOE.  The CBOE Volatility Index is also known as the “fear” index or “fear” indicator in markets.

Velocity Shares Daily Inverse VIX Short-Term ETN (NYSEARCA:XIV): -5.2%, This ETN is designed to inversely track the volatility in the markets as measured by the S&P 500 VIX Short-Term Futures Index.  The S&P 500 VIX Short-Term Futures Index measures the volatility of the S&P 500 Index via futures contracts traded on the CBOE.  The CBOE Volatility Index is also known as the “fear” index or “fear” indicator in markets.

Bottom Line: After touching multi-year lows in March, VIX has broken strongly higher and now is on a point and figure “buy” signal with an bullish price objective 43% above current levels.  This objective may or may not be reached but rising VIX prices indicate rising “fear” and volatility in the market which often coincides with falling stock prices.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

Disclaimer: John Nyaradi’s service holds a position in iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) and trades a wide variety of ETFs; positions can change at any time.