InvestorQ : How do I interpret the current levels of VIX as it is around the 70 levels? Is it time to start buying?
swati Bakhda made post

How do I interpret the current levels of VIX as it is around the 70 levels? Is it time to start buying?

Answer
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Dia Deshpande answered.
7 months ago


Ideally you should avoid buying stocks when VIX is as high as 70. That is called a sell-on-rises market. VIX had touched a peak of 85 during the Lehman crisis in 2008. After that there have been spikes in the VIX but it never got back to that levels. However, since the middle of Feb-20, the VIX has been consistently above 50 levels and even touched a peak of 86.60 in March 2020. Even after the recent bounce of 14% in the Nifty, the VIX continues to be elevated around 70 levels. Here is how you should take a call on VIX. Clearly, any reliable rally in the Nifty can only happen after the VIX tapers to lower levels. As long as VIX is at elevated levels, market rallies are likely to be led by short covering and will face pressure at higher levels. That is why you find that when the VIX remains high, the indices test the lows multiple times. Markets tend to bottom out only after the VIX tapers to below 20. Sharp falls rarely exhibit a V-shaped recovery. A recovery is unlikely as long as VIX is high.