A low VIX is positive for stocks

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The Nasdaq100 and S&P500 indices are showing measured gains, while volatility has declined to levels last seen in January 2020. Many traders are looking at this volatility compression as the calm before the storm, something we saw just over four years ago. The prudent strategy for this market is to 'buy on downturns.

ALX LEADS YOUTH UNEMPLOYMENT CHARGE WITH ACCESSIBLE, AWARD-WINNING TECH EDUCATIONUpsides of Social Media MarketingThe Nasdaq100 and S&P500 indices are showing measured gains, while volatility has declined to levels last seen in January 2020. Many traders are looking at this volatility compression as the calm before the storm, something we saw just over four years ago. The prudent strategy for this market is to “buy on downturns.

Moreover, the VIX spent almost all of 2017 below 12, during which time the S&P500 added 20%, against a long-term average of 10-11%. In this episode, the market didn’t encounter a powerful correction until early 2018, and the index returned to growth from higher levels than before the lull. The distinction between short-term pullbacks and the start of a deeper correction can be made roughly through the 20 level of the VIX. Continued declines in equities and further increases in volatility mean the market switches into “fear” mode. In this case, but not before, it is worth changing tactics from “buying on downturns” to selling on growth.

 

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