What's Aussie VIX saying?

by Raymond Chan

If you are one who watches the VIX index, you may have noticed our own, the S&P/ASX200 Volatily Index (XVI) which spiked to 20 on Friday.

This is from a quite benign reading of mid to high teens for the last few months. It was still at 16 early last week.

Why is XVI worth watching? Its a gauge of the fear factor of traders and investors. Typically, if XVI peaks, it signals the depth of the market and an upward turning point is near.

The question then is at the reading of 20 on Friday, has the XVI reached a peak? Looking back to the last downswing in the market in November last year, having failed to break above the 4815 level, it regsitered a XVI reading of 20 when it fell to the early to mid 4600 level. However, it didn't stop there. The index continued to slide to around the 4560/80 level before turning back up. At the depth of the market then, the XVI was at 21.9.

If this time around the downswing is like the November 2010 downswing, then at the XVI of 20, is suggesting that we have not seen the bottom yet at Friday XJO's close of 4630.

Wait till it gets to 21.9.


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