{"id":54616,"date":"2020-09-26T13:05:27","date_gmt":"2020-09-26T20:05:27","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=54616"},"modified":"2020-09-26T13:05:30","modified_gmt":"2020-09-26T20:05:30","slug":"volatility-index-during-oversold-periods-stock-market","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2020\/09\/26\/volatility-index-during-oversold-periods-stock-market\/","title":{"rendered":"The Volatility Index During Oversold Periods In the Stock Market"},"content":{"rendered":"\n

When the stock market last flipped to oversold trading conditions<\/a>, I expected at least one more spike in the volatility index (VIX) before oversold trading ended. I define oversold as a period of trading in the stock market when AT40 (T2108)<\/a>, the percentage of stocks trading above their respective 40-day moving averages (DMAs), closes below 20%. My expectation for a higher volatility index recognizes the extreme risks facing the stock market in coming weeks and even months. It turns out that volatility in the mid-20s is not low for the start of an oversold period. The chart below compares the volatility index to AT40 from 1986 to April, 2020. The pandemic-driven collapse in the stock market came to an end in April.<\/p>\n\n\n\n

\"Volatility<\/a>
Volatility index (VIX) vs AT40 (T2108) – Start of Oversold Period. Source of data: Yahoo Finance<\/a> and FreeStockCharts<\/strong><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

The orange line marks the value of the volatility index where the last oversold period began at 19.6%. Of the 77 prior oversold periods, just 30 (39%) began with a VIX greater than 28.6. The last oversold period began with the VIX at 28.6. In other words, the start of this last oversold period was not unusual relative to the VIX.<\/p>\n\n\n\n