Stocks could see solid gains in the near future as Wall Street’s so-called fear gauge falls, according to Katie Stockton, founder and manager of Fairlead Strategies.
The CBOE Volatility Index, or VIX, fell last week to its lowest level since November 2021. The VIX is widely looked at by investors as a gauge of uncertainty in the market. It uses S&P 500 stock index options prices to measure the market’s expectations of near-term volatility.
“The good news is that the VIX did break down below the support level that we’ve been watching. And essentially, what that means is that the S&P 500 should eventually break out. As you know, we were watching around 4,155 [for the S&P 500] as resistance, and that level should be surmounted,” said Stockton.
CBOE Volatility Index (VIX) has reached multi-year lows in April 2023
The chart analyst noted, however, that she expects some weakness in near term before the breakout occurs. However, she noted that the Moving Average Convergence/Divergence Indicator, or the MACD indicator, has also turned down lately, giving hope for an upturn later in the year.
“The daily MACD indicator [has] been one of the best market timing devices over the past year or so. And it just turned down for the S&P 500 — it was already pointing lower for the NASDAQ 100,” Stockton said.
“It suggests that this pullback can stay with us for maybe two to three weeks at a minimum. So you’re going to stay on the defense for now, but the chances of a higher low even versus December — the initial support beta on 3,800 — are now higher, given that VIX breakdown,” she continued.
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