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VIX: Why Fear is Set to Grip the Stock Market

Here’s when a positive seasonal bias begins to dissipate

by Bob Stokes
Updated: November 22, 2022

It's hard to believe, but it's been nearly 60 years since the song "Turn! Turn! Turn!" by The Byrds first hit the charts.

You may recall these first two lines:

To everything (turn, turn, turn)

There is a season (turn, turn, turn)

The song reflects on the various changes in life and, in a way, has a parallel in the stock market.

For every bear market, there's a bull market, and vice versa. For every period of low volatility, there's a period of high volatility, and vice versa.

Recently, the CBOE Volatility Index, also known as the fear index, has been on the subdued side.

Here's a chart and commentary from our November Elliott Wave Financial Forecast:

CBOE

The VIX open interest put/call ratio (red line)... just dropped to its lowest level since February 2020, at the precipice of a sudden and brutal meltdown for stocks into March 2020. Complacency toward volatility is still almost as strong as it was back then. As the Dow plunged 38% over a span of 27 trading days, the VIX surged 539% to a high at 85.47 on March 18, 2020. Currently, traders are remarkably calm.

This relatively calm trading action portends a change of "season," if you will.

Yet, the attitude of some investors is full steam ahead. Here's a Nov. 12 headline from Marketwatch:

U.S. stocks could rally another 25% now that Fed no longer has 'back against the wall' in inflation fight

On the other hand, investors would do well to consider this from the Nov. 17 U.S. Short Term Update:

Markets can get volatile around this time of year. The Russell 2000 index peaked on November 8, 2021 and declined 14% to December 20, 2021. Tuesday, November 22, is the one-year anniversary of the top in the NASDAQ indexes and the start of the bear market. As recently as 2018, the DJIA rallied strongly from November 23 to December 3 and then plunged more than 16% to December 26, 2018. In 2015, the DJIA made a November high and declined 14% into mid-January. And in 2002, the DJIA made a countertrend rally high on December 2, 2002 and declined 18% to March 2003. There is a positive seasonal bias into the first few days of December but that dissipates thereafter.

Of course, history may not repeat exactly and low volatility may very well persist for a time before volatility jumps.

However, you may not want to count on that.

Our Elliott wave analysis will help you to ascertain the likely magnitude of the stock market's next big move. Click on the link below to learn more.

The New Elliott Wave Theorist Says:

“It is amazing to be writing this sentence in November 2022, but here we go: By several measures, optimism at the current time is equal to or greater than that which held sway at the broad market’s all-time high in November 2021 and at the blue chips’ all-time high in January 2022!”

The just-published November Theorist goes on to provide detailed and thought-provoking context that’s a must read.

The Theorist is part of our popular Financial Forecast Service, which also offers The Elliott Wave Financial Forecast, another monthly which focuses on U.S. stocks, bonds, gold, silver, the U.S. dollar, the U.S. economy and more.

The thrice weekly U.S. Short Term Update analyzes near-term trends of major U.S. financial markets and is also a component of our flagship Financial Forecast Service.

Learn more by clicking on the link below.

Financial Forecast Service

$97

All month long, Financial Forecast Service helps you stay ahead of the waves in the U.S. markets on the timeframes that matter the most. FFS covers the stock indexes, bonds, gold, silver, the U.S. dollar, as well as market psychology and cultural trends. It is our most popular service.

Comprises the monthly Elliott Wave Financial Forecast, 3x-per-week Short Term Update and at least 12x-per-year Elliott Wave Theorist.

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