Is This A Signal Of Trouble Ahead In The Russell 2000?

The Option Pit VIX Light Is Red, And Volatility Will Drop.

Hey Traders,

While the VIX had a nice intraday pop on Tuesday, in the end, the index closed only marginally higher than it opened.

But that doesn’t mean all is well.

I have been watching the Russell 2000 (Ticker: RUT) the last few days, and the Cboe Russell 2000 (Ticker: RVX) — the VIX of the Russell 2000 — is starting to make some moves.

Here is what I am seeing.

While the VIX itself ended the day on Tuesday kind of ‘meh…’

(Remember, coming off of a long weekend, you can generally count on the VIX going up about 0.8 anyway, so a 1.20 gain is not a lot.)

The RVX has really begun to scream lately, and is now trading at nearly 25!

Chart courtesy StockCharts

What’s more, the spread between RVX and VIX has exploded:

Once this relationship spikes, it can keep going, and it tends to not be a good thing for the Russell 2000:

While I think the move in the RUT over the last three days is a bit overdone, it is possible we could be heading for more downside.

Your Only Option,

Mark Sebastian

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