CNBC’s Jim Cramer said Wednesday he saw signs that the stock market might be ready to pull back from its highs, but a trusted volatility expert suggests otherwise.
“The charts interpreted by Mark Sebastian suggest the S&P 500 is going up … and the negative trends I pointed out I at the top of the show – at least some of them – shouldn’t lead to anything too frightening “,Bad money“Said the host.
Sebastian, the founder of OptionPit.com and Cramer’s colleague at RealMoney.com, concluded after making moves in the S&P 500 and the Cboe volatility index (VIX), also known as the “fear knife” of the market.
The VIX jumped just below 18 in intraday trading on Tuesday before falling back to 16.44. Meanwhile, the S&P 500 lost nearly 1% on Tuesday lunchtime before making up most of its losses by close of trading. On Wednesday the S&P 500 set a new record while the VIX lost some ground.
The VIX and the market usually go in opposite directions. When stocks go up, the fear indicator tends to go down. However, if the two indices are going in the same direction, it suggests that a decline in stock prices is on the horizon.
“If you are concerned that the VIX is going up and so the market is inevitable [headed lower]Sebastian says, ‘Hold your horses,’ “Cramer said.” Sebastian points out that the volatility index is in a huge downtrend, making lower lows and lower highs as the stock market rages. “
“Yesterday showed us that the VIX can give us a quick, sharp move higher when the market is sold out, so some fear lurks, but that fear disappears when stocks rise,” said Cramer. “Right now, Sebastian says that’s the most important thing.”