There was a fair amount of news today about $VIX closing beneath 16. The last time it closed at this level was July 8th, 2011. Today also marked a new 197 day low for $VIX. Let’s look at what happens next after $VIX makes a new X day low.
The Rules:
Buy SPY at the close if
- $VIX makes new X day low
Sell the position at the close Y days later. No commissions or slippage included. All SPY history used.
The Results:
As new X day $VIX lows increase, so does the depth of the pullback that seems to inevitably occur over the next week.
Similarly, the greater the new X day low, the greater performance is punished going forward. The sweet spot seems to reside somewhere between a new 50 and 100 day low.
Today’s current value, a 197 day new $VIX low, yields the poorest performance.
The white Buy-n-Hold line was generated by separating SPY performance into 50 day segments and then averaging those segments.
Thoughts and Caveats:
All runs had enough samples for results to be generalized.
I’m not sure whether I want to make any predictions from these results. Volatility could easily continue to fall, or even flatline. My gut says it won’t, and that a market pullback of a week or so will result in $VIX rising from its ashes.
uh??
exactly!
Wood,
thank you, interesting…
you are just a genius of backtesting 🙂
Thank you much Mr. Partridge. I truly appreciate that. I still have a lot to learn.
Seconded. Extremely impressive.
Very mature analysis.
Thanks dis.
Thanks Wood,
I always like it, sorry to say, when you state your conclusion. That way I don’t have to think too much lol.
FiveO, and when my conclusion is correct, even better. We’ll see. I’m long and strong, but if we can’t break to new highs soon, I think we’ll get a pullback.
$VIX will continue to flat line for a while. In a few months it will be time to buy shares of $TVIX, shares of $VXX and call options on $VXX. The time to buy will be when we are nearing a golden cross on the $VIX. Back-test the golden cross on $VIX and you’ll see that is the sweet spot for going long shares of $VXX and shares of $TVIX and call options on the $VXX is when we are nearing a golden cross on $VIX.
of 200 and 50 day MAs? or 30 day and 50 day? or what?
50-day and 200-day.
What’s with the weird avatar? How do I upload an avatar of my choosing?
Got to gravatar . com, I think.
I think this study is like the prior. Price could go directly to Day 11, over say the next 3 days, and then fall off a cliff. It could dance it’s own fandango a long while, and then fall exactly into step with nominals at Day 20, stuffing its shirt into its pants on the way. Price does as it pleases.. within limits.
The prior study several days ago clearly pointed twd a re-test of the early March Low. But that’s just nominally. Actually, the price of SPY did not, it motored right on to new highs. On average, this is unlikely; and its occurence is another indicator of normalcy being violated to the bullish side, these days.
So it might well be that the best use of a study like this is as a general environmental litmus test, and Woodshedder is wise not to draw too temporal a conclusion from it, or use it to make too concrete a projection.
Nasdaq moved 220% of ATR in 2 days !
3 days out of 100 moves 170 %