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Thursday, July 23, 2009

Volatility Index (VIX) Up on Strong Stock Market... Rare but True

Currently the market is having a huge day - the S&P 500 is up 2.6% as of 3 PM! However there is a rare occurrence taking place... The Volatility Index (VIX) is also up, when you may have expected it to have been down big. Historically the S&P and the VIX have a negative relationship as shown in the chart below.

I blogged about a similar occurrence which happened one June 1, 2009. The market set a new high on June 1, 2009 with the VIX also trading higher for the day. The market sold off the following week, until it retested the high which it could not break. The market was then in a downtrend until recently. The charts look very similar, so I would not be surprised if the market is due for a short term correction.

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