Traders were flummoxed by the sudden fall in India VIX from 38-39 levels to 29-30 levels, a fall of almost 25%. More so, because everyone expected the VIX to remain high till 16th May and even after, till the formation of the new government. In fact many predicted the VIX to touch even 45 levels.
In our earlier post India VIX dated April 25, 2014, we had predicted the VIX to rise after it had corrected to 31 from 37. It did rise thereafter to 38-39 levels only to fall back to 30 in a sudden and sharp move. This fall was not accompanied by any fall in the Nifty indices.
The VIX daily TTO chart below shows how hourly VIX had developed a negative divergence and fell below the daily trend even while the VIX went up to touch new highs of 38-39. This explains the sudden fall in VIX which is likely to take short term support at 31 and any fall below is likely to take it to 24.
The sideways move in VIX may continue for sometime till the entire short term correction plays and is ready to move up again in near future. In the following weekly TTO chart of VIX, the trends have a aligned in a bullish formation which indicate the possibility of the VIX rising higher once the short term correction plays out. Traders can position themselves for the next upmove.
Positive Correlation with Nifty
Since the inception of India VIX this is the first time where the VIX has developed positive correlation with the Nifty i.e. a rise in the indices is accompanied by a rise in VIX. In all previous occasions, the fall in Nifty was accompanied by a rise in VIX.
