The S&P500 Volatility Index (VIX) has been called many things: the fear index; a complacency barometer; the 30 day expectation of stock market volatility; even useless noise just to name a few. In addition, CBOE has begun expanding volatility index data to include other indices and individual equities. Using these can be a great advantage to a money manager/analyst, even if you’re not an option trader or stock jock.

I think it’s fair to say that analysis and commentary around the VIX is abundant. Many times it can seem nebulous or merely descriptive. However, I believe that there is so much more actionable intelligence that can be pulled from these volatility charts. Specifically, this can be done using volatility-based technical analysis (VBTA). Let’s take a look.

Shown above are the Goldman Sachs (GS) daily and 195 min price charts, along side the 195 min GS VIX (VXGS) chart. We use VBTA as the lens to examine price data, and it is no different for volatility data. After all, technical analysis is all about describing human behavior in simple mathematical expressions. Human behavior is extreme and volatility math is extreme math. Ergo, it measures extremes better than anything else, especially human behavior in the markets.

The benefits of volatility infused TA is manifold. For starters, the accuracy in predicting potential zones of where extreme moves can end/turn/stall with high probabilities increases. We show these extreme areas of support and resistance (SR) graphically through the N Bands and horizontally projected SR levels. Examples are shaded on the GS VIX chart. A second layer is added to round out our analysis. This is through locating the footprints of buying and selling pressure, by quantitatively using volume along with volatility. These are the areas shaded on the price charts.

Let’s breakdown the price chart technicals. First, volume-based support is being detected on multiple time frames. Second, Trendwave (which is predictive not descriptive) is showing that the trend should be improving. Transactional Signals (TS) have shown buying pressure has been detected. What is really intriguing is that these buyers are stacked under sellers. So one side will be exhausted. Either way, there is a lot of space to move once this occurs, both to the upside and downside. But right now the bullish odds are stacking up for these time frames.  Let’s just say it has the makings of a juicy move. One scenario not too hard to imagine is that extremely bad news for the financials emerge and these buyers vacate or vice versa.

Let’s put that equity VIX chart/fear gauge to work. BTW, I could do a deep dive on this chart alone. But today, I’ll just focus on the concept of SR. Look how nicely the extreme moves in implied volatility were contained by volatility-based SR. Many of these turns are identified in real time by the SR signals (circled). Knowing these levels in advance can help increase the precision of timing your strategies, not to mention aiding in the development of your strategies, or even weighing which strategy to use. For, if you can win with direction and volatility, that one two punch will will add to your edge. And that is what it is all about.