Volatility Testing Fresh Lows

Once again, the action on the Volatility Index (VIX) was money after the close below 20 AND 17.50 on Wednesday. The prior Thursday, Friday, and Monday peaks failed to clear 24 which would have been a bearish signal ahead of the election. Tuesday’s low on the VIX was at 20.20 and basically a half-point close above key support at 20.

We had repeatedly said throughout October, a close back below 17.50 during the 3Q earnings season would be super bullish for a retest towards 15. On Wednesday, after the election results, the VIX sank over 20% while closing at 16.27. Thursday’s close at 15.20 recovered the 200-day moving average and Friday’s close at 14.94 recovered the 15 level.

Our feeling over the near-term is that the VIX could trade down to 13.50-12.75 on continued closes below 15. This would be bullish for the market but where we would look for signs of a market top. We will turn slightly bearish again on the market once the bears recover 17.50 and then 19-20.