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DJIA: "Volatility Breaks a Trend"

Here's what the CBOE Volatility Index has been doing, and why it matters

by Bob Stokes
Updated: October 01, 2019

EWI's analysis of the stock market is what you could call "thorough." Our analysts leave no stone unturned.

Indeed, EWI's Chief Market Analyst Steve Hochberg has noted:

We look at over 100 indicators that help us assess the correct interpretation of the wave structure.

One of those time-tested indicators is the CBOE Volatility Index (VIX), which is otherwise known as the "fear gauge."

On Aug. 2, our Elliott Wave Financial Forecast said:

Market volatility has been relatively tame but that should change in the coming months.

During our 40 years of market observation, our analysts have noticed that periods of low market volatility are always followed by periods of high volatility, and vice-versa. This may seem like an obvious conclusion to you, but you'd be amazed at how many times that we've also noticed that investors tend to linearly extrapolate the current trend into the future. In other words, when volatility is high, they expect a continuation of the same, and when volatility is low, they often expect that to persist.

Well, since our Aug. 2 prediction, volatility has not gone haywire, but recently it notably picked up.

Our Sept. 27 U.S. Short Term Update showed this chart and said:

volatility-full

The bottom part of the graph shows the daily closes of the CBOE Volatility Index (VIX), which we've inverted to align with prices. While the Dow has been traversing a support shelf at 26,705, shown by the dashed horizontal line, the VIX has been subtly rising since September 13. An important development occurred this week, when the VIX broke through a trendline that has contained the index since August 5.

Our U.S. Short Term Update editor goes on to mention that he is watching this development in conjuction with the DJIA's progressing wave structure.

Learn what he has to say without any obligation. Find out about EWI's risk-free trial, just below.

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A little digging into financial history can show you when the market is likely on the cusp of a major shift.

You see, stock market patterns repeat themselves. Why? Because collective psychology, which is the driver of the stock market, repeats itself.

Our Elliott wave experts have already done the "digging" for you.

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