VIX Screams Lower Stock Prices Ahead (VXX)

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VIX, the CBOE “fear indicator,” has been very complacent lately as it drifted towards multi-year lows and stock prices have meandered higher.

Analysts watch the VIX for indications of where stock prices might be heading next.  When VIX declines, stock prices typically follow with moves higher, and when VIX spikes, fear enters the markets and stock prices tend to trend lower.  The VIX index also has many ETFs which track its performance, the most popular being the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX).

Chart courtesy of www.stockcharts.com

A quick glance at the VIX, the CBOE “fear indicator,” shows complacency running high, in fact so high that the VIX is now reaching multi-year lows which have not been penetrated since back in the “good old days” of 2007 which seem like almost a lifetime ago.

A look at RSI shows us that VIX is very oversold and so ready for at least a short term rebound to higher prices for the indicator.

The significance of VIX and VIX ETFs like NYSEARCA:VXX is that declining readings in VIX typically portend higher stock prices, while rising readings typically precede lower stock prices.  With VIX at multi-year support levels and highly oversold, the possibility of a directional reversal is significant.

Bottom Line: The chart of the VIX shows us an index that is vastly oversold, at significant support and reaching multi-year lows.  Putting it all together, one can only come to the conclusion that a significant and measurable pivot in VIX and NYSEARCA:VXX is likely with an upside price objective in the mid $20s over the short term.  With a rebound in VIX, a measurable stock market correction would also likely be imminent.  Of course, timing it tricky but somewhere in the near future, one could expect such a move to occur.

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Disclaimer: Wall Street Sector Selector trades a wide variety of ETFs and positions can change at any time.