(NEW YORk)–After a strong run up in the indexes since the election the CBOE Volatility Index (VIX) may be indicating the Trump rally may be running out of steam.
The VIX index measures the premium paid for PUTS on the S&P Index. Thus when the VIX price is low this indicates sentiment for the market is upwardly bullish, where as when the VIX price rises it indicates investors are looking to protect gains in the market by purchasing PUTS, which sends the premium for protection and VIX index higher.
The VIX Index had remained roughly around the $12 to $13 range during the run up since the election, but based on some chart indicators the market may feel this rally has run its course, and more investors may be taking on protection from any potential profit taking as the new year trading session kicks off.
The prospect for large stimilus and tax cut packages passing through Congress had sent the market on a impressive run up since the Nov. 9th election. But as we now approach inauguration the market may be setting stage to protect gains as the details of any policies start to come into focus.
Trader Madness, an online community of active traders, recently added the Volatility Index (VIX) as possible bullish trade going into the new year. https://tradermadness.com/discussion-topics/vix/
The Index could find some short-term resistance between $14 and $15, which is around the 200-day moving average. As the month moves forward, and more info on potential policy changes come into focus, look for the VIX to signal where the market could be heading for in the first quarter of 2017.