On Monday, it was VIX
VIX,
+ 6.45%

It traded above 31, leaving it on track to close above 30 for the first time since June 21.

VIX can be an important level to watch, according to DataTrek Research founder Nicholas Colas. In a note to clients on Monday, Colas noted that although the VIX is not yet above 40 — a level that has been reached during every major sell-off of the past 20 years before the market reached a permanent bottom — there could be more interest. The level to be monitored.

We see: Could a stock market bottom without a Wall Street fear gauge reach “panic” levels?

Why hasn’t VIX reached 40 yet?

Why haven’t we seen a spike in the fear gauge on Wall Street this year?

To some on Wall Street, the VIX looked clearly constrained given the level of volatility seen in the market this year. The S&P 500 has already seen 47 daily declines of 1% or more since the start of the year. This is the largest number in a single year since 2002, according to market data from Dow Jones. We still have three months left.

This is well above the 20-year average of 23.6.

However, VIX topped out at 36 in June. Why not higher?

It’s hard to say exactly, but in the end it may not matter. Because as Colas pointed out, multiple closes above 30, so far this year, have been a more reliable indicator of the shift looming. Colas explains more below:

• “VIX has only closed above 36 (2 standard deviations above the long-term average) once this year. That was on March 7 (close 36.5). It stayed above 30 for the next five trading sessions. This was the lowest that could be traded: the index rose S&P 500 increased by 11 percent through the end of March.

• “The next time VIX spent 5 days above 30 was May 5 – May 12. Then the S&P rose 6 percent through June 2.”

• “The last batch of +30 VIX closes this year came close to June 16 lows, and the S&P is up 17 percent through mid-August.”

If this pattern repeats, investors may already be on the cusp of a “tradable” entry point.

But there are other important levels to watch related to Wall Street’s “Fear Scale”.

The VIX forward curve, which reflects expectations of how volatile the S&P 500 could become, became “inverted” as of Friday – a phenomenon that last occurred in June. According to FactSet data, the VIX futures curve is currently inverted through December 21.

The latest market auctions have been a boon to VIX traders. Individual investors can be exposed to the volatility meter in a number of ways, including by buying options or exchange-traded products such as exchange-traded notes Barclays Ipath Series BS&P 500 VIX short-term futures contracts
VXX.ID,
+ 2.28%

Or the ProShares Ultra VIX Short Term Futures ETF
UVXY,
+ 2.99%.

Other Indicators of a Lower “Tradable”

However, the spread between the VIX spot level and where the VIX futures contracts are trading for December 21 delivery is only two pips.

As Jonathan Krinsky, chief market technical officer at BTIG, noted in a recent note to clients: “We didn’t get a major reversal in June, and while we may never get one, history says we haven’t seen an ‘final’ low until we get at least a 10-pip reversal. “.

Another factor that may have exacerbated the recent market swing lower is the level of put option purchases – which helps investors hedge against further dips – in relation to how much calls are bought (calls are paid out when stocks rise above a certain level, known as the “strike price”) .

According to Jeff Degraaf of Renaissance Macro, CBOE’s share-buying ratio in the United States reached 1.29 on Friday, close to its highest level since June. So far this year, that level has coincided with positive returns for stocks three months later.

We see: This stock market milestone suggests the S&P 500 could rise 16% one year from today

But with the S&P 500 approaching intraday lows from June, another low may be a more reliable indication that the recent sell-off in stocks is approaching the point of exhaustion.

This level is the 200-day moving average of the S&P 500, which is 3585.

“With the index basically in place, and some modest buying signals creeping in, we think a tradable bottom is approaching. The question is where. Trimming from the June lows which are close to the 200-week moving average (3,585) makes sense for us,” Kreinsky wrote. Us, especially if we see a broader inversion of the VIX curve.

Lori Calvasina, head of US equity strategy at RBC, believes the next key level to watch will be 3,500 once the June lows are breached.

We see: Stock market ‘on cusp’ important test: Watch this S&P 500 level if 2022 low gives way, says RBC

While it’s tempting to rely on technical indicators that may have worked in the past, both real returns and the dollar are much higher than they were three months ago, Kreinsky noted.

ICE . US Dollar Index
DXY,
+ 0.73%

They are trading at a 20-year high north of 114. The 2-year Treasury yield
TMUBMUSD02Y,
4.316%

On Monday, it rose to its highest level since October 2007 as global bonds entered bear market territory.

We see: Global bonds in first bear market in 76 years based on two centuries of data, Deutsche Bank says

Kreinsky believes the dollar will at least need to halt its relentless rally to the top before stocks can rebound.

Nasdaq Composite
COMP,
-0.14%

It was down 0.5% at 10,817, still slightly above its closing low from June, while the Dow Jones
DJIA,
-0.81%

It was down 1.2% to 29,238, leaving it on course to enter a bear market after finishing Friday at its lowest since November 2020.