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Revisiting the July 19th VIX Drop at Trader’s Narrative

Volatility, as measured by the VIX index, fell by almost 18% on July 19th 2006. Since historically a drop of 10% or more has been a bullish harbinger I’m keeping track of the performance of these signals. Here is this latest signal:

SP500 volatility drop July 19th 2006.png

Following the signal day, on July 20th, the S&P 500 opened at 1259.81. Ten trading days later it was at 1278.55 - that’s almost 19 points higher. But notice that there was a negative incursion of appx. 21 points before it closed higher.

These sort of signals don’t happen very often. But lately we’ve seen quite a few of them as the VIX - and the market - has been zig-zagging up and down. I don’t use such signals as a mechanical system but instead as just another metric to get a better idea of the current market cross currents. Right now the sum of the parts seem to be continuing to point to a significant intermediate market bottom.

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