VIX Spikes As Selloff Hits Market

2020-07-09 | Simpler Trading Team

An expected higher open fizzled quickly Thursday during a fearful day of trading.

Today’s selloff was a sharp pain as the VIX (CBOE Volatility Index) spiked to above 30 before closing the day at 29, a 4% surge. The VIX tracks the 30-day implied volatility of the S&P 500 futures using options prices, and is considered a “fear” indicator.

The VIX exploded to above 80 during the pandemic-induced selloff in March.

A spike in the VIX fit this strange market with fast rallies and faster tumbles. The volatility makes it harder for traders to find and focus on solid setups.

When momentum runs out following fast moves like recent rallies, traders’ fears can be realized with sharp gaps down.

Simpler’s traders watch for internal signals that warn of these gaps that, despite the volatility, can provide profitable opportunities for savvy traders. Or empty an account for the unprepared.

In current market conditions, tomorrow’s direction is even more unpredictable. Since recent history shows a move can go either way fast, it’s prudent to stay short-term in more stable areas of the market, like strong stock sectors or indexes.

When the markets are volatile, the indexes offer a level of “calm” that can be traded with less risk.

Caution is warranted with monthly expirations approaching along with big technology and bank earnings reports over the next few weeks

Why jump out and force a trade when nothing looks good?

As always, staying in cash is a less-risky trading position, so stay nimble and don’t trade alone.

We Saw: an escalated “fear” factor in trading — 

  • VIX spiking to highest level in weeks
  • Nasdaq bucking trend, finishing up on the day
  • Dow tumbling during selloff

We’re Watching: for a strong release of market energy —

  • Pandemic tickers that keep trudging on
  • Big tech sector ignoring fears, selloff
  • Setups in: TSLA, TLT, ZS, PTON, ROKU

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