SPX-VIX Intraday Divergence

The SPX-VIX Intraday Divergence indicator identifies discrepancies between equity market price action and the volatility index to highlight potential trend reversals or continuations. By analyzing the relationship between the S&P 500 and the VIX, this tool aims to uncover moments where the options market sentiment deviates from price movement, offering a more nuanced view than standard technical oscillators.

Usage

The tool is primarily used to spot "unusual" market behavior where the typical inverse relationship between stocks and volatility breaks down. Traders can use these signals to confirm entries or anticipate trend shifts.

• Bullish Divergence: Occurs when the SPX price closes lower than its open, but the VIX also closes lower. This suggests that despite the price drop, market fear is not increasing, potentially signaling a bottom or a "fake-out" move.
• Bearish Divergence: Occurs when the SPX price closes higher than its open, but the VIX also closes higher. This indicates that as prices rise, market participants are simultaneously buying protection (hedging), which often precedes a market pullback.

The indicator highlights these conditions using background coloring, allowing traders to quickly see when the options market (via the VIX) is leading or contradicting the equity market.

Details

Traditional divergences (like RSI or MACD) rely solely on price derivatives. The SPX-VIX Intraday Divergence leverages intermarket analysis. The VIX is often considered the "fear gauge"; typically, when stocks go down, the VIX goes up. When both move in the same direction, it suggests an anomaly in market sentiment. The script calculates these intraday shifts by comparing the open and close values of both symbols within the specific timeframe, providing a real-time sentiment check.

Settings

• Show bull div only?: When enabled, the indicator will only highlight bullish divergence signals on the chart.
• Show bear div only?: When enabled, the indicator will only highlight bearish divergence signals on the chart.
• Stock Index: Defines the primary equity ticker used for the calculation (default is SPX).
• Fear Index: Defines the volatility ticker used for the calculation (default is VIX).

FAQ

How do I use the signals for entries?

Signals should be used in conjunction with your existing trading strategy. A bullish divergence may serve as a confirmation for a long setup near support, while a bearish divergence might suggest tightening stop losses on long positions.

Can I change the symbols?

Yes, the settings allow you to input different stock indices (like Nasdaq) and their respective volatility indices to find similar intraday divergences across different markets.

How can I access the SPX-VIX Intraday Divergence?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.