Last week’s whipsaw action in stocks sent the smell of fear across the markets.
The CBOE Volatility Index, commonly referred to as the VIX or “fear index,” surged to its highest level since late 2012 on Monday as stocks continued to slide. The index, which trades inversely to the S&P 500, is a common indicator of nervousness in the market.
So, can we expect even more volatility to come? And what will it mean for stocks?
“Volatility is still well within normal levels,” said Erin Gibbs of S&P Capital IQ, who pointed out that volatility is still below the five-year VIX average of 20.2.
“Our memories are short. We’ve had nine months of extreme and unusually low volatility,” said Gibbs. “[Investors] are going to have to get used to having some [wild swings] in the markets,” she added. “I’d expect the VIX to drop back to the mid-teens in the next couple of weeks.”
Gibbs also mentioned that the apprehension in the markets is typical heading into earnings season. “We still believe the outlook for U.S. companies looks very good.”
(Watch: Pisani: Watch VIX for stability)
Todd Gordon of Tradinganalysis.com said both the VIX and S&P 500 are at critical levels. “We are testing resistance in the VIX, and we are testing support in the S&P 500,” said Gordon. “If either were to break about 1,900 on the S&P 500 and 18 on the VIX, that would open up the flood gates.”
According to Gordon, if the support and resistance levels are broken, the S&P 500 could head down to about 1,820 and the VIX could surge past 20.
“There’s been a lot of open interest in the 20 VIX calls for next month. Traders are betting it’s going to happen.”
Check out the video above for the full discussion with Gordon and Gibbs.
---Follow on Twitter: @CNBCDiaz, @CNBCNumbers