The CBOE Volatiltiy Index (VIX) jumped higher to open above a downward sloping trend that has lasted since late-April. Reasons for the spike in the volatility index are uncertain but could include some of the following:
· The FOMC Minutes communicate a shift from forward guidance to a stronger reliance on unfolding economic conditions as reference for monetary policy evolution.
· Israel/Hamas rocket exchange and escalations
· Portuguese bank ‘short-term’ debt overdue repayments
· Of course, equity market weakness, either for above reasons or separately
Today action in the VIX is relatively critical for technical reasons. The spike higher leaves an open window in candlestick analysis which points to support below on unexpected news. The advance also brings the index clearly above the downward sloping channel trend which had successfully captured trade since late April. Longer standing confusion about the meaning for lower volatility will call forth the prospects for heightened reassessment for portfolio protection on the back of present move.
At open this morning the VIX index reached only as high as the 100-day moving average at 13.23. It had traded below this moving average since the aforementioned late-April trend start. The VIX will need to exceed the 100-day m.a. on settle today to invite more momentum interest.