Key points:
- The VIX stock is trading near its recent highs, indicating max negativity.
- The fear and greed index suggests we could get a stock rally soon.
- However, nothing is guaranteed in the markets.
The VIX (INDEXCBOE: VIX) stock price is trading near its recent highs, which usually indicates that investor sentiment is at peak negativity. However, given that the VIX is a contrary indicator, peak negativity usually means we are about to get a stock market rally.
However, the VIX can trade at elevated prices for a while; hence, the rally may not be immediate, but as a trader, I would want to buy stocks rather than sell when the VIX is trading near its highs. With most US stock indices trading near their recent all-time lows, the stock markets look pretty oversold.
Also read: What Are Defensive Stocks?
However, many investors tend to underestimate how long stocks can trade in the oversold or overbought territory before reversing course and heading in the opposite direction. So while there are no guarantees in the markets, the VIX is signalling that stocks could be much higher in the coming weeks than their current prices.
From a technical perspective, we have had three significant legs of the downtrend that has been in place since the year started, marked by significant rallies followed by declines. Of course, many might call for a market bottom, but that is generally a fool's errand.
As traders, we must make buying and selling decisions based on our data at any given moment. Therefore, looking at the VIX index, we can deduce that the markets will start rising soon.
We could use other confirmation methods to get into bullish trades, such as a 2-day rally and close in positive territory, indicating that the bulls have taken control of the price. Other confirmatory methods include using indicators, where we could buy if the price is above the 20-day Moving Average.
Technical traders use multiple confirmation methods to make decisions. Still, despite our best efforts, the markets will do what they want, and there is little we can do except react and adjust our trades accordingly. Hence, it is important to only trade with funds you can afford to lose.
*This is not investment advice.
The VIX stock price chart.
The VIX stock price is trading near its recent high of 34.77, indicating peak negativity.
