The VIX: Navigating the S&P 500

Hey everyone and thanks for jumping back Into the equity verse today we're going To talk about the volatility index or The vix and how it can be used to Navigate Equity markets if you guys like The content make sure you subscribe to The channel give the video a thumbs up And check out the telegram Channel which We have a link to in the description Below if you want to talk about these Markets of course you can join that Telegram Channel and talk with 40 000 of Your closest friends let's go ahead and Jump in now the volatility index or the Vix is something we we talk about Somewhat infrequently on the channel but The reason why I'm bringing it up today Is because it's coming down to a a Fairly historic level of support during This inflationary bear Market okay so if You were to take sort of a Line in the Sand here and and maybe we should draw a Rectangle just to sort of show you the Range at which the vix has previously Bottomed you you can see you know we had A bottom here in August and in December Of 2022 and now we're coming into that Same range in January of 2023. now you Might be wondering what is the Usefulness of the vix what would the vix Bottoming even mean well what's Interesting is we also know that the s p Has been essentially putting in lower Highs for a quite a long period of time

Right I mean you know ever since January Of 2022 we know the the S P 500 it Continues to put in lower highs and it's Also been putting in lower lows although Arguably recently some people are are Speculating whether this is is sort of a Turning point and actually in my last Video on the S P 500 where we talked About this bear Market I mentioned that These Wicks were telling us that the Bulls were were potentially prepared to Launch sort of a counter attack here in The short term okay now What does the vix tell us when we Overlay it with the S P 500 well first Of all remember this the the vix Bottomed so we've had several different Bottoms on the vix so this is the one From August of 2022. this is the one From December okay they both bottomed at Around that 18 to 19 level if you could Take a look at the S P 500 August Corresponded to this top on the s p and Then this was the December top right so Again if you go back and look at the vix And we continue to take this all the way Across right you'll see another time Where it came down into this 18 to 19 Level and this one was back at the end Of March and early April and you'll know That that corresponded to that top So perhaps what I'll do is I will now Overlay the S P 500 on this chart so That we can better show the comparison

Between the vix and the S P 500 what you May notice and we'll just simply draw a Few rectangles here to show you sort of That range what you'll notice is that When the vix historically at least During this inflationary bear Market It's not always like this of course but During this inflationary bear Market any Time that the vix has come down to this Level it actually has marked a a Short-term top in the S P 500 right so If we were to just sort of take a a very Brief look at at every single time this Has happened you can see that you know The vix hit seven you know that 18 to 19 Level here and it corresponded to that Top and then when it hit the the 18 and 19 level over here it corresponded to The top back in March and then Furthermore Um if you if you look at it in December right when the vix went down Again to that 18 to 19 level it also Corresponded to this top in the S P 500 Right so uh so March August and December Again you can see it very clearly over Here right March August and December and Each of those three times we found the Vix bottoming at around that 18 to 19 Level okay So uh for reference the lowest it went Back in April was around uh 18.45 the Lowest it went over here in August was Around 19.12 we're actually below that

Right now and then the lowest that it Went in December was 18.95 so it's not that dissimilar from Where the you know from where the from Where the vix sits today and we're also Coming back up on that 4 000 level for The s p 500. now the one point where it Would diverge a little bit is if you Actually go to the very beginning of This of the inflationary bear market Right so the very first one uh the very First top on the S P 500 as we know Occurred all the way back here in in January right so it occurred in January But back then the vix bottomed all the Way at around that 16 to 17 level so it Actually went just a bit lower so the Point I'm trying to make at least is That the vix is it can be a useful tool In navigating the equity markets it's Not necessarily going to tell you uh you Know every every little thing that Happens but you can see that the vix at Least since the inflationary bear Market Got underway the vix had been bottoming Around that that 18 to 19 lava with the Exception of the very beginning phase of The bear Market where it bottomed right Around that 16 to 17 level so again Right now the vix is sitting just over 19 and if you're not following the vix I Would I would at least encourage you to Add it to your watch list so that as you See the further it goes down the more

Likely you're going to see this bounce Back completely up to the upside the Other way we can look at this is to look At the the short-term Tops on the Vic so In the same way that there's been Bottoms on the vix around that 18 to 19 Level we can also note that during this Inflationary bear Market there's also Been very similar Tops on the Vic as Well and what you may notice is that the Last the last top here so we had a top On the vix at around Um you know September 28th at around That 34 to 35 and then again in October And that corresponded to this double Bottom right so it tops at around 34 to 35 during the inflationary bear Market Which also Corresponded to the bottom on the S P 500 right and if you go back to June uh You can see that it also topped at Around that 34 to 35 level which also Corresponded to the s p finding a bottom And then again over here Um the the vix tops it around again that Same like 34 to 35 level maybe with a Spike up to up to around 36.64 which Sort of also corresponded to at least This local low on the on the S P 500 you Can continue to sort of go on right it Seems like a lot of times when the vix Is topping at around that 34 to 35 or Maybe even 36 level it's also Corresponding to at least a a local low

On the S P 500 right you know Essentially time and time again the vix Is up here the s p is is hitting some Type of a bottom and again even over Here before the bear Market started back In December of 2021 you'll notice that The s p hit some type of a local bottom At a at the when the vix was around that 3 34-35 level and then it went higher And it was when it went higher right Over here so we know that the vix Went higher or sorry the S P 500 went Higher and that was when the the vix was Was going uh just a bit lowered so I I Think one way to potentially look at This and I'm just going to clean this up A little bit so I just want to remove Everything uh very briefly Right and and just look at it like this With just two rectangles on here so we Can really isolate you know the vix and And what it has where the range really Has been for the most part for the Entirety of 2022 and now early 2023 and You'll notice that you know with the Exception of of really early on so with The exception of say like January Um when when the vix went all the way Down to that 16 to 17 level We've basically been in this window Where the vix goes all the way up to 34 The 34 to 36 range or so and that tends To represent Tops on the S P 500 whereas When it comes down to the 18 to 19 level

It is represented bottoms on the S P 500 So it's just been sort of like you know Ping like like ping-ponging Um throughout here and and the tops on The vix have been fairly Accurate at calling bottoms and and the Bottoms here on the vix at around 18 and 19 have actually been fairly good at at Calling tops okay so you know to sort of Bring this home I'd like to spend a Little bit of time just talking about The S P 500 I understand a lot of people Are probably hoping I would talk about Uh Bitcoin in this video but I did just Put out a video on it yesterday and I Know that Bitcoin has rallied up today Um you know basically to almost nineteen Thousand dollars but in the in the video We did yesterday we talked about right This likely outcome I mean Bitcoins seem To have some momentum and we talked About you know where it could Potentially go so it is coming up on on Some of those levels we talked about so I'd encourage you to just go watch that Video if you want to hear me talk about Bitcoin I'll probably talk more about it Tomorrow or maybe even later today but I Did want to at least briefly talk about This because the S P 500 is coming up Here on a pretty important resistance Level right so you know we know that the Vix has been instrumental in calling Tops and bottoms right bottoms have been

Around that 18 to 19 level except for January when it went down to the 167 17 Level then tops have been around that 34 To 35 level with maybe one one or two Exceptions at 36. it's important because The s p for the fifth time is coming up On the downtrend line right so you'll Notice that we've held resistance at the Downtrend line not once not twice not Three times not four times you could Even argue this was sort of four and Five because we had a double top but Let's just call it you know just one Right so four times rejected by the Downtrend line and now we are testing it Once again now this might automatically Lead you to believe that we will break Through and I would argue there is a Chance that it could happen right I'm Not you know it is dangerous to to sit And and Proclaim that anything has to Happen right if if this inflationary Bear Market has taught us anything it's That it makes a fool of both the Bulls And the Bears right the Bulls will go a While thinking they're right and then The barrels will go around while Thinking that their right and actually It almost feels like the Bulls have Probably felt like they're right more Often than the Bears just because a lot Of times we'll Trend up for so long and Then the new downtrend can happen very Very quickly and and take us to new lows

And then and then you start the uptrend Again right and we just sort of rinse And repeat this same brutal cycle over And over but there were some times where We sort of tested the bottom and then we Then double tested it right here we can Close and then we bounce and then we Sort of double tested it again so you Could argue that there's you know sort Of a similar scenario going on up here Where we tested the top and then we came Back down here and everyone thought it Was going to come back down here and it Didn't right it actually showed support Here Um on these Wicks we actually talked About that in the last video on the s p And and it and it moved back up right And now we're testing it again now Here's the tricky part okay now my base Case for the S P 500 again has just been Lower highs right this has been my base Case for quite a long period of time and And namely because we know that the feds Raising interest rates and this is Causing a liquidity crisis okay we've Talked about this it's like when you When you're standing around a pool and I've given this this sort of Um you know this analogy before if we're All standing around a pool and and the FED is draining liquidity from the System so they've pulled the plug at the Bottom liquidity's leaving the pool

Right so liquidity in the pool is going Down it doesn't mean that if enough Investors are standing around the pool With a cup of water if we all throw it In at the same time then the levels in The pool can temporarily go up right They can go up in the in the short term But it doesn't change the fact that if You wait long enough the the level of The pool will still go down and the Reason is because again the FED is Draining liquidity from the system and This is kind of a way that you can Better think about these bear Market Rallies right so you get all these bear Market rallies but they haven't actually Led to new highs right now I do want to Talk about one scenario okay So my I get my base case Um has even over here in in December if You followed me then or in August my Base case has just simply been that will Just get rejected by the downtrend line Right that's the base case it just seems Like the most likely outcome every time We get close to the trend line everyone Says we're going to break through it and Then so far it hasn't happened right it Will eventually happen okay it will Eventually happen but as we've discussed Before whenever it does happen right Whenever it does it doesn't necessarily Mean that it's over okay this is the the The bear Market from Crash and

We actually had a very similar downtrend Line that we tested multiple times and When we finally broke through it It probably would have made people think That the bear Market was over when in Reality it was just one step away from The sort of the final capitulation right And what's interesting is about this if You actually zoom in on this on this um Um you know on this time frame over here What you'll notice is that we actually Had a very similar thing occur right so We had sort of like a top that was just Below the trend line and then a double Top Right and then it came back down I Imagine a lot of people would have Assumed it was going to go put on a new Low and we had those Wicks again right Those Wicks and it was like all right Well the Bulls are gonna give it another Go and the Bulls gave it enough juice to Actually get us beyond the downtrend Line but it ended up just simply being a Triple top right and then we came back Down to finalize the bear Market note That this triple top occurred in q1 of That year right now this bear Market by That time had already been going on a Lot longer because it had started in September of 2000 so arguably if you Want to compare in terms of a time-based Perspective where we could be if it had To last the same amount of time which it

Probably will last a very different Amount of time than prior bear markets Um then you would actually have to go to Say like you know September of 2001 Which would actually put us somewhere Over here right so that doesn't really There's not a perfect correspondence Here between this bear market and the Last one okay they do sort of follow Their their um Their own course they don't they Certainly don't operate at the at the Same rate and every we know that every Single bear Market is in fact different The one thing I will say is that in Terms of an average length of a bear Market the S P 500 in 2022 experienced What would be an average bear Market Okay so this is an average bear Market It lasts about like eight or nine months Um and a fairly a fairly average Drawdown okay fairly average drawdown That lasts about eight or nine months About 27 27 to the downside and so then The question is is this bear Market Average or is it not and that's where You have to decide whether you think a Recession is coming because while bear Markets that do not include recessions Might only last eight or nine months on Average bear markets that do include Recessions typically last you know where Somewhere between one to two years and If we are are getting a recession then

That is a risk that you have to consider Again I will say again we are simply not Saying that anything has to happen by Saying anything has to happen you're Sort of locking yourself into one Scenario or one outcome and when that Happens if it doesn't go your way then You know you're not hedged right and It's important to be hedged Um in in various ways so we're not Saying that anything has to happen but I Have shown the risks as to why a Recession could occur and if a recession Does occur then it means the bear Market Is not over and if the bear Market is Not over then even if we do break the Downtrend line it doesn't mean we're Actually going to to sustain it okay Um you could even imagine you know if You you know even a scenario where it Could rally all the way up to 4100 4200 Maybe even 4 300 but it doesn't Necessarily change the recession risk Right it doesn't change that there's Still that risk that exists and again You know I mean I I know there are some Some very optimistic people who say that A recession does not have to occur and They're essentially betting on the labor Market Remaining relatively tight so you you Know if you if you think your recession Is not going to occur I I would imagine That you're thinking that the labor

Market will remain tight despite the Tightening by the Federal Reserve and if That's the camp that you sit in and you Think that a recession will not happen Then I imagine that you would think that This would be the bottom of of the of The bear Market okay so hopefully this Perspective is at least somewhat useful In in navigating this Market I do as I've said before I think that you know Throughout 2022 I I said many many times That that cash was King I still think There are still elements of it being King in 2023 it doesn't mean you're not Going to find deals throughout this year I do think 2023 is going to be full of a Lot of good opportunities on on risk Assets in general but hopefully Hopefully understanding the vix and how It has operated over the last year Provides you with some insight that you Maybe previously did not have again Right now it's sitting at 19.1 one the Lowest it is gone today is 19.07 and Actually back in December it bottomed at 18.95 so if the s p were to Rally to the Top of this trend line right here it Would take it to around that forty Thousand forty so forty forty all right If the s p goes to 4040 then you're Likely looking at a vix below 19. and if It goes below 19 that's essentially Where the vix has previously bottomed For this entire bear Market except for

With the exception of January Do note that the 200-day SMA is also Currently being tested I think we're Slightly above it Um we are so if you take a if you take a Very brief look here at the Um a 200-day you can see that it has Provided a a significant level of Resistance during this bear market so Far and that every single time we've Gotten above it so we've gotten above it A few times Um since the bear Market began but they Were all relatively short-lived and so We find ourselves above it once again The the 200-day estimate is at 39.84 We're currently sitting at 39.91 so Again we find ourselves above it Um but again the question is is will it Be sustained or will it just simply be Another lower high or even a a triple Top okay so that is what I think it's Important to look at and if you're Wondering you know what would be some Type of invalidation for you know for All of this I I would have to imagine That if you if you break the trend line And and then you come back down and then You know you're you hold at a higher low Um that could be somewhat optimistic But you'd also have to keep a close eye I think on on the you know what the Federal Reserve is doing okay because The Federal Reserve holds the key to

Understanding in my opinion whether we Go into a recession they're responsible For a lot of the recessions of the past By tightening policy okay it's the over Tightening of policy by the Federal Reserve that kicks us into a recession That's one of the reasons why Inflationary periods like the 70s are Ripe with several recessions whereas Periods like the last 10 years are not It's just because we haven't had high Inflation in a long time when we have High inflation it changes the reaction By the Federal Reserve and when the Federal Reserve changes into a more Hawkish stance which is what they've Done it runs a higher risk of a Recession than it otherwise would have So in addition to having to see a higher Low and then you know continuously Higher lows and no longer lower highs I Think you'd also have to see you know is The Federal Reserve going to to meet Their two percent objective on inflation Without causing a sharp rise in the Unemployment rate and right now the Federal Reserve of course they've been Talking about Raising interest rates I mean I you know The market right now is saying the Highest probability is another 25 basis Point rate hike in February and then I Think another 25 best baseball rate hike In March this will get the FED funds

Rate up to around that five percent Level uh by the first quarter and so Then the question is is what happens After that right what happens after March so they continue raising at all do They sit and hold and if they do just Sit and hold does it'll does it mean That inflation keeps going down or does Inflation stay somewhat sticky because If inflation goes back up with the Reopening of China or something then the The FED might have to to continue to Raise interest rates you know in the Past I've said before that I think the The terminal rate is is probably Somewhere between four to five percent That was what I said for the first half Of 2022 and then in the second half I Revised that to say somewhere between Five to five and a half percent I still Think they are going to at least make it To five percent unless they break Something between now and then but as of Right now it does doesn't seem like it Doesn't seem like that's happening so I Do think that they will likely make it To five percent and then after making it To five percent I I think they're gonna Have to keep a close eye on on CPI and See is it actually coming down in a Material way and it's a tough balance Because you have to you know they want To raise interest rates enough and for Long enough to bring inflation back down

But they also run the risk of tightening Too much and sending the US economy into Into a recession and again the reason Why that's important is because risk Assets like the S P 500 they tend to Bottom during the recession okay so Again I understand you know long term we We we might not see a recession I Understand there's a chance of that Happening but I would be remiss if we Didn't at least talk about it and plan For it because if it does happen all the Warning signs would have been there if You guys like the content make sure you Subscribe to the channel give the video A thumbs up and again check out into the Cryptiverse premium add into the we do have several Different tiers including a free one you Can find a link to that down in the Description below thank you for tuning In I'll see you next time bye


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