VIX.....A Contrarian Indicator!!!

The Market Volatility Index (VIX) is a contrarian indicator. It measures the

Sentiment of options traders by gauging the level of volatility in the prices of

0ptions traded on stocks in the S&P Index. When the VIX is trending up, that’s

usually a bearish sign, and when it’s trending down, that’s a bullish sign. In

addition, relatively high readings in the VIX should be viewed as too much

pessimism and likewise a bullish sign. That’s because such high readings

usually indicate an intense panic in the markets and typically, after a wave

of panic selling, the market recovers. In contrast, relatively low readings

should be viewed as too much optimism and as a bearish sign. That is

because complacent investors are likely to be whopped upside the head by

a wave of selling triggered by the smart money, which senses that there isn’t

much cash left on the sidelines to sustain the rally. The above chart contrasts

the movements of the weekly VIX (RED LINE) versus that of the weekly

S&P NIFTY (GREEN LINE). Note how the broad market moves in the

opposite direction of the VIX-therefore; it’s a contrarian indicator.