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Revisiting the 26% VIX Drop at Trader’s Narrative

Revisiting the 26% VIX Drop

On June 15th, the VIX fell almost 26% (green arrow). And as I’ve already mentioned before, whenever the volatility index falls more than 10% in a day, historically, the following 10 trading days the market is higher.

The day after volatility was crushed, the S&P 500 opened at 1256.16. Ten trading days later on June 29th, the index was at 1272.87 - 16.71 points higher. This was in keeping with the historical pattern of this signal and was a welcome result since last time things did not work out as well.

VIX falls 26 pc.png

But there are two things that you have to keep in mind. One, there was a negative incursion of 19 points before the 16.71 point advance. And two, it is questionable if we would have been a positive result without Thursday’s Fed announcement bull rampage.

Since I’m not a systematic trader, I only offer this concept as a backdrop. But if you are a systematic trader, the fact that most of this higher close came about as a result of one day and a very rare day, wouldn’t matter. At the same time, I don’t think any good system would risk 19 points to gain 17 points.

Interestingly enough, on June 29th the VIX again fell more than 10% - about 17.5% (purple arrow). So I’ll revisit this again in about 10 trading days to see how the latest signal worked out.

For more on the change (rather than absolute reading) of the volatility index and its interplay with the market, check out this recent article from Mark Hulbert.

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One Response to “Revisiting the 26% VIX Drop”  

  1. 1 Revisiting the 17.5% VIX Drop at Trader’s Narrative

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