Is The VIX Really Broken? | Trendlines Over Headlines with Andrew Thrasher
Andrew is a portfolio manager at Financial Enhancement Group and he's the 2023 winner of the Charles H. Dow Award.
Key Takeaways
- A 5% decline from a 52-week high occurring within 15 trading days (3 weeks) signals potential major market weakness; when this triggers a close below the 200-day moving average within 2 months, the average 3-month drawdown is nearly double that of regular 5% pullbacks
- Monitor the VVIX (volatility of the VIX) as a secondary indicator—rising VVIX alongside a flat or declining VIX signals increased hedging activity and potential market stress ahead, similar to the February 2020 divergence that preceded the COVID crash
- Use the 50-day moving average above the 200-day as a simple uptrend definition; when markets pull back 5% slowly (taking longer than 15 days), this lack of momentum suggests a 'buy the dip' opportunity with 87% historical win rate 2 months later
- Fast momentum declines draw more retail trader attention and news coverage, which exacerbates selling pressure; slower declines lack this psychological trigger and retail engagement, creating lower risk for dip buyers
- The VIX at 52-week lows is insignificant in isolation—focus instead on tight consolidations and low standard deviation (dispersion) in volatility, which are the actual conditions that precede major volatility spikes
Is The VIX Really Broken? | Trendlines Over Headlines with Andrew Thrasher: In this episode of Trendlines Over Headlines, volatility expert Andrew Thrasher joins joins Patrick Dunuwila, CMT, Editor and Co-Founder of The Chart Report to make sense of the $VIX and the broader market. Andrew is a portfolio manager at Financial Enhancement Group and he's the 2023 winner of the Charles H. Dow Award. To watch more episodes of Trendlines Over Headlines, please click this link: https://www.finstream.tv/videos/trendlines-over-headlines/
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