VIX Fear-Gauge Hits Crisis Highs Amid Cross-Asset Volatility Explosion

As the index fear-market indices of VIX come off the highs they reached in late June and early July, they are now hovering near their all-time lows. The VIX index has now hit new all-time lows in the past two weeks alone.

While the index is now at its lowest point in two months, the recent dramatic rally has prompted a number of investors to go on tilt to put their money into the VIX index. While the vast majority of investment professionals and political pundits remain bullish on the market, many of them have been ignoring the latest, rising worries about volatility.

In an era of slow growth and a volatile stock market, the markets are increasingly becoming cyclical. During the bull market, many buyers feel better about their portfolio and are therefore more willing to trade. They don’t mind paying the price to be able to make money now instead of later.

Investors often pay the price because after the recent post-election euphoria, they find themselves in a strange place: trying to figure out what the future holds. The last few months of the season gave them a chance to review their strategy and confirm if they need to adjust their strategy.

Large numbers of traders have decided to raise their red flags and stop investing. Some may have plans to liquidate their position before the price level can fall to their target point. Others are still assessing the market as it stands.

Even those who are still invested in the index are doing their best to move their funds out of a volatile market. For them, the index is experiencing a recent downturn, but this downturn may also signal the start of a rebound, which would have a positive effect on the index.

Another factor contributing to the continued downswing in the index is the hot-button subject of bailouts. While many of the new bailout laws have been enacted, there are currently no bailout provisions in the bailout bill that would extend to the index.

Investors who believe in the stability of the index, however, are afraid that the current scenario will prompt another crash. This makes sense given that the index was trading above its resistance level when the bailout bill was passed.

Given that the VIX index is back to its historical average and that it is at or near its all-time lows, you could say that the current, steep climb has given rise to a correction in the index. If you take advantage of this correction, you stand to earn a very nice return if the index reverses its downward trend, though it will probably take more than two weeks to reverse.

I don’t rule out the possibility that the index will rise again, but there is no doubt that it has reached its bottom in a very short period of time. The trend line drawn from the bottom to the top of the VIX index is currently showing a slight upswing, which does not bode well for the index.

There is no guarantee that the index will not fall in the near future. What is certain is that the index is now trading in an extremely low value zone and this is a serious concern for anyone who has been invested in the index.

The index’s downward movement has caused a number of sell-off in the equity market, especially when this is coupled with the current fact that the US dollar is weak and may soon be facing a double-digit inflation. It is very possible that the VIX index could reach near or even current market highs in the near future.