By Samir Al Khoury
The VIX Fear and Volatility Index, which expresses investors’ expectations regarding the price movement in the stock market within a month, decreased by 12.45 points last Friday. This marks its lowest level since January 22, 2020, indicating stability and investor satisfaction in the American stock markets. Today, the VIX is hovering around the 13-point level.
This noticeable decline is attributed to several factors, most notably:
• The US dollar index, measuring the performance of the dollar against a basket of six major currencies, declined, breaking the 103-point barrier, and recording 102.47 points yesterday—its lowest level since August 11, 2023. Additionally, there was a decline in US Treasury bond yields of various terms.
• Seasonality: The months of November and December are usually characterized by positive performance of US stocks, known as the SANTA CLAUS RALLY.
• Markets started pricing in a roughly 43% rate cut in March 2024, reaching around 100 basis points in 2024.
• Positive US economic data for stock markets, such as a slowdown in the consumer and producer price indices, along with a decline in jobs data, all indicate the possibility of an end to the monetary tightening cycle followed by the US Federal Reserve.
However, the question arises: Is it time for investment institutions to sell these stocks, constituting a large portion of their portfolio, in order to carry out profit-taking operations that are usually applied at the end of each year, known as window dressing?
Finally, the markets are closely awaiting today’s release of the Core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation indicator. Expectations are that it will record 3.5% on an annual basis, a lower percentage than the previous reading (3.7%). Any decline in this indicator will give upward momentum to US stocks and thus contribute to a further decline in the fear index.
Technically, if the pivot point at 13 points is broken, there is a possibility that the VIX will target the support levels of 12.31, 11.71, and 11.03. If it exceeds the pivot point, it is likely to target the resistance levels of 14.31, 15.57, and 16.62.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.
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