The S&P 500 and the VIX don’t just move inversely — they talk to each other. When institutions buy S&P puts to hedge their positions, VIX rises, algorithmic sell programs kick in, and downward pressure builds on ES. When hedging demand dries up, VIX weakens, buy programs activate, and the path of least resistance flips upward.
Dylan O’Neal’s framework (as shown in this Chartfanatics video: https://youtu.be/4BgkLlwgpvo?si=wWGypeFnP2sHw4__) turns this relationship into a practical trading filter. The core idea is simple: before acting on a breakout or breakdown in ES, check whether the VIX is confirming or diverging. A breakdown below the previous day’s low that is not supported by VIX strength — meaning the VIX fails to reach its own prior day high — is likely a bear trap, not a continuation. Add NASDAQ relative strength or weakness as a third layer, and you get a high-confluence setup that tells you not just where price is moving, but whether the institutional positioning behind it is real.
Let’s take a look at the actual data from 2026, analyzing the first 10 sessions in January:
1. Monday Jan the 5, 2026
Session open:
- ES broke PDH at the open
- VIX broke PDL at the open
- NQ open way below PDH
After a couple of 5min candles:
- ES above PDH
- VIX back above PDL –> bearish divergence
- NQ still far away from PDH –> bearish divergence
At IB:
- ES kept going up
- VIX was trying to break PDL but failing –> bearish divergence
- NQ rising but still well below PDH –> bearish divergence
Despite the divergence with VIX and NQ, ES kept moving slightly higher throughout the morning session.
Throughout the second part of the session, the divergence eventually developed into an actual bearish move in ES, which returned to the PDH area, losing 25points from the highs.
2. Tuesday Jan the 6, 2026
Session open:
- ES broke PDH
- VIX far away from PDL –> bearish divergence
- NQ broke PDH
Divergence in place but third layer, NQ, not conducive.
ES run up 10points and then divergence started to develop in actual bearish move: 25 points back inside PD range.
Despite the divergence, ES resumed its upward move and closed near the days highs (and NQ as well).
3. Wednesday Jan the 7, 2026
Session open:
- ES broke PDH
- VIX is strong as well –> bearish divergence
- NQ broke PDH
Divergence played out right away with ES back in the range below PDH while VIX continued to rise.
After a new failed break above HOD, with VIX still strong, ES lost PDH and dropped until the end of the session.
4. Thursday Jan the 8, 2026
Session open:
- ES broke PDL
- VIX seems in synch, above PDH, but failed right away, and back in range –> bearish divergence
- NQ broke PDL
The divergence with VIX played out: ES did not continue the break below PLD and spent the entire session hovering around the level.
5. Friday Jan the 9, 2026
Session open:
- ES broke above PDH
- VIX still within PD range –> bearish divergence
- NQ still within PD range –> bearish divergence
Divergence played out right away with ES back in range as well.
…But after this failed break, VIX was coming below PDL and ES was returning to the HOD area.
The ES bullish breakout was therefore now confirmed by a weak VIX, although the third layer was missing with NQ remaining relatively weaker than ES.
6. Monday Jan the 12, 2026
ES spent the entire first part of the session within the range of the previous day, but the VIX showed relative weakness, trading around the PDL, and even NQ had a slight relative strength being slightly closer to the PDH than ES was.
In such a context, the continuation of the bullish movement of ES became likely, which indeed broke the PDH, reaching then 10 points higher.
7. Tuesday Jan the 13, 2026
ES spends the entire session within the range of the previous day: there are no actionable divergences.
8. Wednesday Jan the 14, 2026
Session open:
- ES broke below PDL
- VIX broke above PDH –> breakout confirmation
- NQ broke below PDL –> breakout confirmation
Signal and bias confirmed: the breakout continued throughout the first half of the session for about 50 points.
9. Thursday Jan the 15, 2026
Session open:
- ES broke above PDH
- VIX is below PDL –> breakout confirmation
- NQ hovering PDH
Despite a weak VIX that should have confirmed the breakout, during the session ES returned in range just like NQ, which signaled potential breakout issues already at the opening with its relative weakness.
10. Friday Jan the 16, 2026
ES spends the entire session within the range of the previous day: there are no actionable divergences.
Executive summary:
To wrap things up, data and charts collected in the first 10 sessions of 2026 confirm the relevance of the divergence between VIX and ES.
For sure it does not always translate into the desired movement, but when combined with the correct reading of the relative strength of NQ and a proper selection of entry and exit signals, it can be a decisive confluence factor for the profitability of a strategy.
edgelab 