I recently published a simple study which examined how SPY has performed after $VIX closed above its 200 day average. The flip side of that study is to examine how SPY has performed after $VIX has closed for X days beneath its 200 day average and then closes above it.
On June 1st, $VIX closed above its 200 day moving average after trading beneath it for 115 days. There are only six instances in the entire $VIX history where it has traded for more than 100 days beneath its 200 day moving average. Does the number of days it has traded beneath the 200dma have any discernible effect on SPY performance if SPY is bought at the close the day $VIX closes back above its 200dma?
Buy SPY at the close if
- $VIX has closed beneath its 200dma for more than X days
- $VIX closes above its 200dma
SPY is sold Y days later. No commissions or slippage included. All SPY and $VIX history used.
The results show that we can expect more sideways trading and volatility. While the >99 days results are promising, there were only 5 trades. The dates and results for these 5 trades are below. Perhaps 20 years from now we will have enough samples to draw some conclusions, but for now, we must only observe and try not to make major decisions on the results generated from only 5 trades.
EntryDate % Gain/Loss
SPY 8/3/1999 -3.21%
SPY 3/10/2004 -2.63%
SPY 2/27/2007 8.36%
SPY 1/22/2010 9.00%
SPY 6/1/2012 3.71%
The >24 days below results were generated from 30 trades. 25 trades were held the full 50 days. While this is not a large sample, I believe it is large enough for us to expect more volatility and sideways trading.