Today, $VIX gained more than 30%. What do these huge gains in the fear index portend for the short and intermediate time frames?
Buy SPY at the Close if
- $VIX Gains More than 25% in One Day
- Sell at the Close X Days Later
- No Commissions or Slippage Included
- All SPY Data Used
What stood out the most was that 68% of the trades closed higher the next day with an average return of 1.08%. Beyond that data point, what happens over the next month (20 days) was much as I had expected. It appears that a large one-day gain in $VIX might signal a shift in market psychology and thus should be warning sign to traders. Average returns did manage to claw back to breakeven twice 50 days later, so it may be better to be patient here than to panic. Of course with the entire EuroZone on the verge of unraveling, if one were to panic, I can’t say I’d blame him!