With markets overbought, keep an eye on the Volatility Index (VIX).
For one, the Dow Jones, for example, is starting to fail at double top dating back to August. RSI, MACD, and Williams’ %R are all in overbought territory, as well. We’re also starting to see fear creep back into the market with some earnings disasters, and uncertainty over what the Federal Reserve is going to do next.
While many of us were hoping for an interest rate pause, others, like St. Louis Federal Reserve President James Bullard said the central bank still has a lot of work to do before it brings inflation under control. That statement alone adds to fear the Fed is nowhere near finished aggressively raising interest rates. Worse, there are still fears of recession.
One way is to trade the UVXY ETF, which tracks the moves of the VIX.
For those of you that are new to the UVXY, the ETF was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index. As the VIX moves higher, the UVXY typically follows.