(11 votes, average: 4.64 out of 5)
Loading ...Check Out how over the last few days the S&P has declined and the VIX has also declined, this is not normal. The S&P and VIX usually have a very strong inverse relationship, when the S&P goes down the VIX usually goes up. I was curious to find out what the expectancy is in the S&P when the VIX and S&P are both going down at the same time. Rather than eyeballing my charts and trying to find instances in the past that look similar to the present I quantified the current VIX and S&P relationship as a 3 day RateOfChange in S&P is less than zero and a 3 day RateOfChange in the VIX is less than the 3 day RateOfChange in the S&P. I tested this entry rule using a time based exit of 1 through 20 days in increments of 1 day.
When the S&P is down over 4 days and the VIX is also down over 4 days the results are a negative outlook for the S&P with 9 days out being the most bearish time based exit. Using the 9 day exit the S&P has only been positive 53% out of the 203 occurrences and the average return was -.08%. As a comparison in a random 9 day period the S&P has been up 57.9% of occurrences and the average return has been .034%. When the S&P is down and the VIX is up like normal the 9 day return has been .052%.
Below are comparison charts to show the current situation of “ VIX DOWN and S&P DOWN” , “ Random” , and “S&P down VIX UP”. Each column has 3 charts with winning percent across the top row, Total net profit in the 2nd row and profit factor in the last row. The X axis on the bottom of each chart represents the time based exit of 1 through 20 days.
http://ripetrade.blogspot.com/2008/12/s-and-vix-positive-correlation.html
Interesting angle.
It reminds me of the DeMerk indicator that Wood blogged about but, that’s probably because of the nine day time frame you noticed.
Did you run these results through a Chi Test to make sure it wasn’t random?
Check out the charts at the original post here http://ripetrade.blogspot.com/2008/12/s-and-vix-positive-correlation.html
It shows the results of all time based exits from 1 through 20 days.
Ripe, why aren’t you emedding your blog URL in the body of the post? That would make click throughs easy.
Thanks, Wood
Actually I did check the original post ripe, but the thing that confuses me is the layout.
A chitest is supposed to give one the intentionality of the data, i.e. how far away from a coin flip the data set is.
I couldn’t quite make that out in your screen shots.
My software doesn’t do the Chi test,so I compared the positive VIX/ SPX correlation to a random 9 day hold in the S&P and the typical inverse relationship of the VIX/SPX. Thats the best I can do.
Great stuff Ripetrade.
I also meant to say that I’ve been enjoying your posts.
Thanks guys
Yeah, good work.
It’s always nice to see another technical trader.
El Cuervo, I’ve been on an easylanguage crash course. Soon I’ll be able to test your strategy almost exactly as you have posted it.
This is so cool Ripe, thanks for the correlation insight!
oooooooh good good. i like Vix trackers.
-gio
Good observation.
The missing link might simply be relative strength.
Compare the VIX declines in mid-Mar to mid-May and Mid-July to late-Aug time frames. And also more recently in December. Then overlay/filter with RSI.
Low RSI readings might explain why the market has been stuck in this trading range in spite of a significant drop in the VIX.
I wasnt trying to develop a system out of this, I just wanted to shed some light on the current scenario.