Futures on the CBOE Volatility Index (VIX) are rising nearly 5% today, climbing once again above the 20-point level, amid weakening sentiment on Wall Street. However, Morgan Stanley analysts stated in today’s note that any potential market pullback would likely be seen as “a buying opportunity” and estimated a potential correction in the S&P 500 at around 5%.
One of the main catalysts for such a pullback could be a rise in 10-year Treasury yields above 4.5%. The analysts pointed out that the Consumer Discretionary and Consumer Staples sectors could be the most negatively affected, while industrial stocks may perform better. Still, if a 5% correction occurs, the VIX index — which reflects institutional demand for hedging — would likely rise significantly from current levels.
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On the daily chart, the RSI indicator still signals a dominance of volatility sellers. Looking at the moving averages, the VIX index has risen to levels close to the EMA200 (red line), which conventionally marks the long-term downtrend.
A break above the 21-point level could confirm a scenario of further growth in volatility, possibly toward the 24–25 range, but this would require stronger declines in U.S. equities.
Two hours before the U.S. market open, the US100 is down -1.4% and the US500 is trading -1.1% lower. As long as the declines on Wall Street remain moderate, the VIX index may still lose momentum and drift back toward recent lows.
Source: xStation5
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