A closely watched measure of expected volatility in the US stock market rose to its highest reading since March on Friday. That may still not be enough to entice contrarians to buy lower stocks as the S&P 500 tests important support levels, according to a senior Wall Street technical analyst.
The Cboe Volatility Index VIX, known by its symbol VIX and sometimes referred to as Wall Street’s “fear gauge,” jumped to a high of 21.83 on Friday. That was the highest intraday reading since late March. On Thursday, the index snapped a streak of 101 trading days without closing above 20 according to Dow Jones Market Data. This was the longest run since the 126-day series that ended in October. 9, 2018.
“No, given the fundamental breadth issues in the market, I don’t consider it a buy signal even though it was often after lines like this,” Jonathan Krinsky, chief market technician at BTIG, told MarketWatch on Friday.
Breadth — a measure of how many stocks are gaining strength versus losses — remained weak.
The VIX index reached an intraday peak of 31 in March, as concerns about regional banking problems weighed on markets. The VIX is an options-derived measure of the S&P 500 SPX’s expected volatility over the next 30 days. Its long-term average is around 20. Readings that indicate extreme calm are often seen as sell signals, while extreme spikes can accompany a selling frenzy.
But investors should be careful not to read too much into the movement of the index.
“The VIX is mostly based on the speed of the S&P 500, so it is definitely not a leading index,” said technical analyst Mark Arbeter, president of Arbeter Investments LLC.
This means that when the S&P 500 falls quickly and strongly, the VIX
“It will go up,” he said, noting that a 5% drop in the S&P 500 in three or four days, for example, would cause the VIX to rise quickly. The same decline over 10 days or more won’t do much for the VIX.
Analysts point out that the VIX, although rising to its highest levels since the spring, has been relatively weak. It remains, for example, below its 2022 average of 25.5, UBS strategists noted in a note on Friday.
The VIX pulled back from its early peak on Friday, and was down 0.3 points at 21.09 in recent trading. The Standard & Poor’s 500 Index fell 0.5% near 4,254 points, on track for a weekly loss of 1.7%, while the Dow Jones Industrial Average (DJIA) fell.
It is heading for a weekly decline of 1.1%. The S&P 500 fell off session lows after testing support near the 200-day moving average at 4,233.
Analysts said Friday’s weakness may reflect tension ahead of the weekend over the war between Israel and Hamas, although the overall impact on assets has been relatively weak so far. Oil futures remain of interest to investors in other assets, with the possibility of energy supply disruptions as a result of the fighting being the biggest risk to markets and the global economy.
Treasuries rose on Friday, pulling yields lower, but have been subject to a sharp sell-off since the start of the war, failing to attract the strong haven offers that often accompany periods of heightened geopolitical tensions. The 10-year Treasury yield BX:TMUBMUSD10Y on Thursday approached the psychologically important 5% level after hitting another round of 16-year highs this week.
be seen: A strategic expert warns: There is a 70% chance that the war between Israel and Hamas will extend beyond the Gaza Strip, threatening oil
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Stocks were on track for weekly gains, but remained below the 2023 highs set in late September before October 13. 7 – Hamas attack on Israel.
“The usual trade we see in such situations as geopolitical risks increase is a flight to safe-haven currencies, such as the US dollar, the Swiss franc, the Japanese yen, and most importantly a flight to US Treasuries,” said Enrique Diaz Alvarez, chief risk officer at Ebori Financial Services. “But we don’t see this at all,” he said in a note Friday.
“The markets have been so depressed so far. They take into account almost no financial or economic impact, and the price of oil has barely moved since the attacks,” Diaz Alvarez wrote.
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