Watch these 2 Indicators Together, and Not Just One of Them Alone
Sometimes, investors need to check correlations between different indicators in order to truly understand if conditions are as good or as bad as they think they might be.
If one were to look solely at the VIX this week, you would be concerned that fear levels were showing a panic situation. (See the top of today's chart.) In spite of this week's spike up on the VIX, it held at a 2008 to 2011 resistance line.
On September 15, 2008 ... the VIX was at 31.70. If you looked at another indicator such as the NYSE New Lows back then, you would have seen that the New Lows came in at 622. New Lows were 19.6 times higher than the VIX ... and the market was on the road to beginning its Bear Market slide.
This week, on March 16th, the VIX had an intra-day high of 31.28, but the NYSE'S New Lows came in at a much lower number ... 71.
The bottom line this week, was that the New Lows were only 2.2 times higher than the VIX ... a far cry from the 19.6 times figure in 2008.
Since New Lows is a function of how much panic selling was going on, the VIX's spike this week was not suggesting the same kind of market deterioration as what was seen in 2008.
Yes, the fear was there with the Libyan, and Japanese problems ... but the panic selling levels were not even close. The Libyan and Japanese problems are not gone yet, but if they continue to subside, then the VIX will also continue to subside. If that becomes the case, then the relatively small number of New Lows would be a bullish underlying condition for the market.
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