Volatility Increases Ahead Of Fed Minutes, Debt Ceiling Deadline As Market Turns Lower

The CBOE Volatility Index VIX was surging almost 9% higher Wednesday.

Traders and investors are growing increasingly concerned over the likelihood that the U.S. could default on its debt.

Investors are also watching for the release of the Federal Reserve’s meeting minutes to gain insight into whether interest rates will increase again later this month.

The VIX is used to measure the expectation of near-term volatility in the stock market, and volatility is used to gauge market sentiment, specifically the level of fear that exists in the S&P 500.

The stock market appears to be attempting to price in a hawkish tone from the Fed and a heightened risk the government’s discussions on the debt ceiling may fail, which saw the S&P 500 gap down and continue to fall about 0.7%.

Traders wishing to trade the volatility in the stock market can use MIAX’s SPIKES Volatility products. The products, which are traded on SPIKES Volatility Index (SPIKE), track expected volatility in the SPDR S&P 500 SPY over the next 30 days.

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The VIX Chart: The VIX reversed course on May 19 after printing a bullish triple bottom pattern near the $16 mark, when paired with similar price action on April 28 and May 1. On Monday, the VIX reacted bullishly to the pattern and started to rise and on Wednesday, the VIX opened above the 50-day simple moving average, which is bullish for that index and bearish for the stock market.

• If the VIX closes near its high-of-day, it will print a bullish Marubozu candlestick, which could indicate higher prices will come again on Thursday. If the VIX closes with an upper wick, it could indicate lower prices or consolidation is in the cards.
• Although the VIX negated its downtrend on Tuesday by printing a higher high, the index hasn’t yet confirmed a new uptrend with the formation of a higher low. Traders can watch for the VIX to eventually retrace to print a bullish reversal candlestick, such as a doji or hammer candlestick, to confirm a possible new uptrend.
• The VIX has resistance above at $21.79 and $23.15 and support below at $19.43 and $17.71.