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Chart In Focus

VIX Futures Open Interest

Chart In Focus
April 05, 2019

VIX futures contracts have only been a thing since March 2004, and they were not a big thing when they first started.  In more recent years, they have become an important tool for a lot of hedge funds and other portfolios, and they have also become important in terms of giving us information about what lies ahead. 

This week’s chart looks at the total open interest in all of the different VIX futures contracts which are open at any given time.  It does an interesting job of correlating well with what stock prices are doing, as modeled here by the SP500.  Extremely high readings for VIX open interest do a good job of marking meaningful price tops, although it is not always easy to detect in the moment that open interest is making such a peak.  Tops are that way, sometimes more diffuse and less focused.

Very low readings, well below the 200-day simple moving average, are good markers for price bottoms.  And this point gets even more fun when prices are rising, and the total open interest remains low.  That is the condition we are seeing now, and it is a sign that the speculators who employ VIX futures are not yet adjusting their positions for the evident new uptrend.

That’s really fun, because in the past when the total open interest numbers stay low into a new uptrend, it means that the uptrend has a lot longer yet to run.  The risk of a meaningful top only comes after the open interest numbers start to rise, and they climb up well above the 200MA.  It is nowhere near that situation right now. 

That means the uptrend which started off of the Dec. 24, 2018 low should have a lot longer to run.

Tom McClellan
Editor, The McClellan Market Report

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