The Spike in the Volatility Index Points to Higher Stock Prices

• Posted by Greg Harmon
• on April 21st, 2013

Despite what you might read or hear elsewhere, the equity markets remain in an uptrend. Yes, an uptrend. It may be ending but until signals confirm a move lower, it is an uptrend. And with that in mind consider the signal that the Volatility Index, $VIX, gave last week. It popped right? That means volatility is going higher and stock prices are going to fall. Not so based on recent history. The chart below shows the VIX in the top panel with the S&P 500, $SPX, in the bottom panel. In this long downtrend in the VIX it has had other

spikes higher. In fact the last 3 times it has moved above its 200 day Simple Moving Average (SMA) and then retreated, this has marked a bottom in the S&P 500. The move higher from that bottom has averaged 8.25%. And what happened last week? The VIX crossed the 200 day SMA and then retreated again. If this time marks another bottom then a similar move higher would take the S&P 500 to 1662.50. Interestingly my friend Todd Salamone at Schaeffer’s noticed something similar in a VIX signal last week, but from the other direction. Read his analysis here. Maybe there is something in the water in Ohio or maybe the upward movement is not done yet.

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