A low volatility tends to precede high volatility

The major U.S. stock market indices are trading in the negative territory ahead of the release of inflation data and the Consumer Price Index (CPI). A hotter-than-expected print is likely to produce a pop in volatility and convince central bankers in Washington to keep monetary conditions tight during the upcoming meeting in March. Consequently, we pay close attention to the VIX index, which has been testing the resistance at $14.49 since the start of the year. In addition to that, we watch a concerning relationship between the declining volume and the increasing price.

Illustration 1.01

The image above shows a concerning relationship between the rising price and the declining volume.

Illustration 1.02

Illustration 1.02 displays the daily graph of the VIX. The yellow arrow indicates yesterday’s opening gap. One notable thing about the VIX is that it has been trading below $15.50 for 92 trading sessions. To find a similar low-volatility period, one would have to go back to late 2017/early 2018 (shortly before the massive spike in volatility and market selloff).

Technical analysis gauge
Daily time frame = Bullish
Weekly time frame = Bullish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.

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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor or any other entity. Therefore, your own due diligence is highly advised before entering a trade.

Comment:

The VIX is up more than 17% following the release of higher-than-anticipated inflation data.