VIX breaks higher as traders brace for further market declines

The VIX and the EU VIX push higher as markets tumble, with the sharp deterioration in market sentiment pointing towards a potential break higher after months of consolidation.

Volatility on the rise as markets tumble

Stocks throughout the US and Europe have reversed lower as a resurgence in Covid cases sparks fears of another bout of nationwide lockdowns. That topics is unlikely to go away, with Germany and France potentially set to announce a tightening of restrictions today.

With the US election due next week, there is little surprise that the so-called ‘fear gauge’ has pushed sharply higher over the course of the week. The Volatiltiy Index (VIX) is typically negatively correlated with the S&P 500, with the brevity of the previous pullbacks ensuring that the VIX rebounds were similarly limited.

However, there is a fear that this current period of stock market weakness could be more protracted than any seen since the March lows in global markets. As such, there is a possibility we could see the VIX run higher over the near term as market pessimism continues to take hold.

Near-term resistance comes in the form of the 34.80 swing high from early October, with a push above that level paving the way for a move towards the hugely significant 39.60. Looking at the VIX over the course of the past six months, that 40.00 region appears to be a major hurdle where the index feels relatively stretched.

Above that point we are looking at a position where many will attracted to potentially look for longer-term short positions on the presumption that normality will resume soon enough. There is no guarantee that we will reach the 40.00 level, with hopes of a vaccine breakthrough and US stimulus package potentially quelling the current negative sentiment that permeates markets.

Nevertheless, with the possibility of a huge swathe of Europe being locked, the economic recovery soon turns into a double-dip recession.

While some point towards the US election uncertainty being a significant driver of an elevated VIX, the negative correlation between stocks and the volatility index does highlight that whatever is causing this market selloff is responsible for the VIX rise.

Given the fact that the lockdowns we are currently seeing are predominantly in Europe, it makes sense to look for specific weakness in European stocks. As such, the EU Volatility Index (EU VIX) if of particular interest here. The break through 30.00 highlights how this rebound is more advanced than the VIX.

With the index having consolidated throughout recent months, there is a chance we could be in for a bullish breakout should market weakness persist. Once again, the 40.00 region looks like long term value for shorts. However, until that happens, the potential for a period of downside does make the EU VIX an interesting long position over the short term.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.