Volatility Divergence And Volatility Index Technical Analysis



Volatility Divergence
The India VIX has been making new lows recently however I published the US VIX 2 weeks ago to show how the new high in the US market was not confirmed by a new low in the US VIX. Now over the last week the US VIX has shot up to a 3 month high. So unless this spike is a one off and drops overnight the rising US VIX should lead the India VIX higher as well. History shows that all big jumps in the US VIX are followed by a jump in India VIX. So Volatility back home maybe about to take off



VIX - Volatility Index
The US CBOE Volatility index best known as the VIX has been falling for a year now, with interim bouts of rallies in between. So are we seeing another garden variety bump up in volatility? Given that some of the news is geopolitical it may appear so. But purely on weekly charts the first half of 2015 saw a 5 wave contracting triangle which coincided with a contraction in the Bollinger Bands and then Vols expanded sharply upwards in the months ahead. Since then once again we have witnessed a triangular pattern with five waves that has now ended in a contraction of Bollinger Bands. So the contraction does make it viable for a larger expansion to follow. One that could break out of the triangle and see new highs. This contraction in bands is a good reason to pay extra attention to volatility expansion this time around.




Adam Smith Associates offers trade & commodity finance related services & solutions to its domestic & international clients. Views expressed in this article are purely of the author - Mr Rohit Srivastava - a leading technical analyst. Visit www.adamsmith.tv for services offered by Adam Smith Associates Pvt Ltd

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