With many key money managers away on vacation, world stock markets continued to plunge as the PBOC disappointed markets by not delivering a much anticipated rate cut over the weekend. The CBOE volatility index, also known as the VIX, is an important measure of volatility with the U.S. equity markets and yesterday, it had a historic spike higher above the 50 level.
Monday morning saw massive trading volume. After four minutes of panic selling at the NY open, we saw panic buying occur around 9:40 am EST. The S&P 500 fell into correction territory and the VIX surged the most ever on a weekly basis and reached levels that have not been seen since 2011.
Price action on the VIX daily chart shows that since coming off near record lows a couple weeks ago, yesterday’s skyrocketing move higher saw price ultimately respect the 200.0% Fibonacci expansion level of the 2014 high to 2015 low move.
The financial markets are now waiting for either the PBOC to intervene or the Fed to defer raising interest rates until December or next year. If we see both, or one or the other, price may quickly comeback below the 30 level.
The trade: Sell VIX at 40.50 with a stop loss at 45.50 and a take profit at 30.50. The Risk/Reward Ratio is 1:2.
Edward J. Moya
Chief Technical Strategist
WorldWideMarkets Online Trading
