VIX Breaks Out To New Technical Highs As Market Sell-Off Intensifies

The VIX Volatility Index spiked to above 20 on Tuesday, approaching its highest levels of 2019 amid a broad market sell-off on trade war concerns. The Dow and S&P 500 were on track for their largest intra-day drop since Jan. 3.

The last two times the VIX traded above 20, it didn’t stop there. Here’s a look at key levels for technical traders to watch for the rest of the week.

Resistance Smashed

The VIX has skyrocketed 64.3 percent since Friday’s close, jumping from below 13 to above 21 before pulling back a bit in mid-day trading. The two-day surge smashed through key medium-term multi-month resistance levels, including the 200-day simple moving average at 16.6 and the 18 level that transitioned from support to resistance back in January. The VIX tested 18 twice in March, failing to make a sustained breakout both times before blasting through it this week.

Now that the VIX is approaching new 2019 highs, there is very little near-term resistance holding it down. The 22 level served as resistance briefly in late January. Above that level, a re-test of the December high of 36.20 may be back in play in the coming weeks.

Historically, the VIX has been prone to short-term spikes followed by prolonged periods of drifting back down to support in the 9 to 11 range. The VIX spiked as high as 50 back in February of 2017 before ultimately drifting back down to below 11 by August of that year.

In December of 2018, the VIX skyrocketed back to 36 on fears of a potential U.S. recession before bouncing back down to around 11 in mid-April after first-quarter earnings season wasn’t as bad as many had feared.

Now, it’s once again the fear of a ramping trade war with China that seems to have investors spooked.

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Volatility As A Hedge

Ironically, the volatility index is itself extremely volatile and can be difficult to predict in the near term. Traders should likely hold off on taking short positions in the VIX until a clear near-term top has been reached.

Traders can, however, consider taking long positions in volatility-related funds such as the VIX in the near-term as a potential hedge against an accelerating market sell-off. For example, the CR SUISSE AG NA/VELOCITY SHS SHORT VIIX ETF is up 19.7 percent so far this week and could help offset potential portfolio losses if the selling pressure continues in the next several days.

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