Set up for a rebound in the VIX soon

Set up for a rebound in the VIX soon

09 August 2022 from Carlsquare

We have seen a summer relief rally in the US and European stock markets. The rise in prices has been highest on the Nasdaq, where information technology companies have delivered solid Q2 reports compared to expectations.


More encouragingly, the price increase in equity markets has been supported by a simultaneous price increase for HYG (a US high credit risk corporate bond ETF). Buying junk bonds at current low levels is mainly a bet on relatively few anticipated bankruptcies going forward, we believe. Financial crises (most recently the Lehman crash of 2008) tend to be associated with prolonged periods of stock market decline.

Five- and ten-year US Treasury yields are broadly at the same levels as at the beginning of July. This follows a strong US report on Friday 5 August with 528,000 additional jobs created in July and only a 3.5% unemployment rate. Meanwhile, we have seen a downward price trend in commodities recently, which on the contrary should trigger lower interest rates.

The VIX index, which measures market volatility in the US, has come down sharply during July to what looks like a position with a strong possibility of a turn to the upside again. Autumns through October usually bring some weak and turbulent periods for the stock market.

Ukraine is preparing a counter-offensive against the port city of Kherson. The war with Russia cannot expected to be over until the turn of the year at the earliest. In the meantime, Europe (the EU and allied Western countries) should reduce its heavy dependence on Russian gas and oil. Russia, on the other hand, may try to provoke a recession in the EU countries by, for example, restricting access to Russian gas and oil ahead of the upcoming winter. Add to that the risk that Wall Street and European equity analysts may have to lower their corporate earnings forecasts for the second half of 2022, all of which would likely send the VIX index higher from its current low levels.

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results. Left: percentage Right: VIX index


Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results. Left: percentage Right: VIX index

The full name for abbreviations used in the previous text:
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.
MA20: 20-day moving average
MA50: 50-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence

Important notice
This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future results.

04/10/2022 18:52:05


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