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Stock Market VIX Historical Patterns And This Stock Market Rally

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Last month the US S&P 500 fell through its 200-day moving average and this month it plunged, causing a spike in the VIX options volatility index to spike up over $50.

Now the stock market has rallied and the VIX has begun to dip back down, closing last week below $30.

I believe the VIX is very likely to fall below $20 and even below $18 over the next 6-12 weeks.

Historically, even in bear markets, in which the S&P 500 trades below its 200-day moving average, and that indicator acts as resistance, the VIX will spike when the markets makes a short-term bottom and then fall back below $20 as the market rallies.

Bull markets are defined by the 200-day moving average trending up and acting as support. This is what is happening with gold now for instance.

In 2008, before the big market financial crash everyone remembers, the stock market fell about 16% from October of 2007 into January of 2008 to create a big spike VIX. It then rallied and the VIX fell below $18.

At that point the market rally stalled out.

The same thing happened after the first big internet tech stock meltdown of April of 2000 that launched that big bear market. After that first drop the market bounced and the VIX fell below $18.

One historical thing worth noting - in a big bull market, like the one we saw from 2009 to 2020, there typically is only one VIX spike a year, and often a year goes by without one, and the VIX tends to actually trend down and spend almost all of its time below $15.

In stage three tops, though, suddenly there are two or three VIX spikes, and then a stage four bear market begins.

We obviously have seen what is wild volatility in the markets this month with big down days and big up days in the market.

-Mike

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