Volatility Focus – VIX Near May Low

The S&P 500 Volatility Index ($VIX) traded to a fresh multi-month low of 11.07 after cracking the early June test to 11.22. The May 4th bottom reached 10.91 with a session range high of 16.92 and action I intensively talked about at the time that could be a bullish signal for the summer.

Fresh support is at 11.50-11. A close below 10.75-10.50 would signal a possible market breakout with a possible trip into single-digits. However, and this is very important, continued closes back above 12-12.50 followed by higher highs would represent a possible “triple-bottom”. 

Resistance is at 13-13.50 and the 50-day moving average on continued closes above 12.50. Volatility won’t become a major issue until continued closes above 14.50-15 and the 200-day moving average are back in play. 

There will be a debate among the talking heads that when the VIX is low..."it’s time to go". It is important to remember the VIX can trade at low levels for weeks and months. From the early September 2017 run into early January, the VIX basically traded below 12.50 and 10 for long periods of time. 

It is hard to say if this type of action will occur throughout August, or longer, but it is important to remember there were a couple of spikes to 15 over this 5-month time period. I mentioned throughout July it was imperative this level needed to hold with last Thursday’s spike to 14.53 representing the highest peak in nearly a month.

RSI has been in a nice downtrend following last week’s lower lows with near-term support at 40-35. A close below the latter would be a continued bullish development for the market. Resistance is at 45-50. A move above 55 would be a bearish signal for a possible near-term market top.