3 years ago

XVI XJO divergence

This should bother every intraday trader.
The Red line is the XVI the aussie version of the VIX.
The Magenta  line ( lower) is the XJO.
I have highlighted the correlation of the two, when the XVI rises the market falls into a bearish phase.
As the XVI falls it signals a low in the market and a return to a bullish phase.

It measures risk…First metric is the number of PUT options in the market.
You buy PUT options to take price protection in falling markets.
Today the XVI is just on 17, when it reaches 20 it is considered very bearish.
When it sits around 12 – 14 it can be very positive for the markets.

This chart bothers me…the XVI is rising AND the Index is rising.
One of them is going to be wrong…the market will correct back to a support level? or the XVI will roll down to a bullish level.