Watch the VIX Index a.k.a the Fear Index...

This week we have the FOMC and NFP news announcements so it's a great time to spend doing deeper market analysis. Currently, we are seeing some interesting levels reached on the VIX Index (Volatility Index) which is essentially a market breadth indicator also known as the Fear Index. When the index is at high levels, fear is in the market and is usually found at market lows and therefore represent good buying opportunities. When the index is a low levels, over confidence and complacency are in the market and is usually found at market tops. 

Below is a chart of the S&P 500 cash market, with the VIX Index (blue line) overlapped. You'll notice it is essentially a mirror image. Nevertheless, the key level is the horizontal line I have drew in on the bottom. 

When the VIX reached this level in April 2010 we had an immediate sell off. Then when the VIX was at the same level during December 2010-February 2011, the market rallied and then sold off aggressively. The VIX Index breached the line again a year later in April 2011 and we had an aggressive sell off. We are now at a similar level which has been breached, indicating over confidence and potential complacency in the market. However, the market is still bullish and this is not a timing indicator. I personally only trade at technical levels so a good place to look for potential shorting opportunities is the potentially 1457.21-1432.75, which also may fall in line with an Elliott Wave 3, as below:

The market is and has been bullish and has provided many decent trading opportunities on pull backs. Look out for the levels above, news announcements this week may give an indication of trend and it being a US election year where the stock market typically performs badly during mid-terms may further highlight what we are seeing on the VIX Index.