Alongside an immediate term TRADE breakout in the US Dollar Index today, you are seeing one of the only other glaringly bearish global macro charts give the consensus shorts a headache – the Volatility Index (VIX).
Importantly, the VIX is also testing a breakout of the much more relevant intermediate term TREND line which sits at 27.81. Both of these quantitative factors (TRADE and TREND lines) are outlined in the last 2 of the charts attached which will give you both an immediate term and long term perspective on today’s critical move.
The VIX has held above 23 since late July, despite the fact that realized volatility on the S&P 500 has been steadily declining (see charts below and further discussion below).
As a refresher: the VIX index is a measure of the volatility implied by the premium that people are willing to pay to purchase options on the S&P500. As such, a divergence between the actual historical volatility and the anticipated future volatility extrapolated from the options market provides a market sentiment indicator of sorts. With the VIX outpacing realized volatility since April, the implication is that options speculators are expecting greater volatility going forward, that equity investors are nervous and anxious to buy downside protection or both (see chart below).