Is the VIX Signaling Another Volatility Peak to Come? Via Investing.com

Investing.com — , or the VIX, often referred to as the “fear gauge,” is showing signs of another potential peak in market volatility, according to the latest Sevens report.

After rising above 60 in early August, the VIX has fallen sharply and is currently around 15.

Despite this decline, Sevens warns that ignoring the VIX could be a mistake, as the index is now trending higher, making a series of higher lows not seen since late 2021, when led to significant market disruption.

In addition to the uptrend, Sevens Research highlights the unusual term structure of VIX futures. “The VIX futures curve is downtrending,” the analysts explain, meaning the October contract is trading at a premium to the November contract.

This is a rare development and suggests that derivatives traders are positioning themselves for a significant increase in volatility in the coming weeks, according to Sevens.

They explain that longer-duration contracts typically trade at a premium to shorter-duration contracts because of the increased risk over time.

However, the reversal seen here implies that traders are expecting an increase in volatility before the October contract expires on October 16.

The report recommends watching for three key developments: a rise in the VIX above the 24 level, a normalization of the VIX futures curve (which would be bullish for stocks), or a rising premium between the October and November contracts.

If the latter occurs, it “would indicate growing risks of a selloff that could send back to the lows of early September or even early August,” Sevens concluded.