Markets have been in a state of turmoil recently over the GameStop drama. Stocks have been tumbling, so how do traders time entries to go long again? Well, one key indicator is the VIX.
What is the VIX?
The Cboe Volatility Index (VIX) is a real-time market index representing the market’s expectations for volatility over the coming 30 days. When it rises, stocks fall as market participants predict more volatility ahead. So with all the drama surrounding the GameStop, AMC, Nokia and BlackBerry shares the VIX has risen prompting heavy outflows from major indices.
However, opportunities remain for the recovery when it comes. Many traders look to the VIX to guide that timing.
An opportunity signaled by the VIX ahead
When the VIX drops we can see stock markets recover. It is a pretty reliable pattern and you can see the last couple of recoveries in the VIX led to large gains in stocks. So, with the Fed on hold, we can expect stocks dips on buyers. If the VIX spikes again, just waiting for the VIX to drop again before dip buying can help with timing.