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A lot of people focus on the absolute number of the VIX. Some (being a bit more astute) focus on the relative number of the VIX. While others still, focus not on any number but on the VIX’s fluctuations.
Last year, a contributor to the EliteTrader forum mentioned that everytime the VIX drops by 10% or more in a single day, the market as measured by the S&P 500 has been higher 10 trading days later. Here are some recent examples:
- Aug 18th 2004 - VIX down 17.5%
S&P closed at 1095. Ten trading days later it closed at 1105
- Sept 21st 2004 - VIX down 14.5%
S&P closed at 1129. Ten trading days later it closed at 1134
- May 25th 2004 - VIX down 13.3%
S&P closed at 1113. Ten trading days later it closed at 1131
- Oct 30th 2003 - VIX down 11.5%
S&P closed at 1046. Ten trading days later it closed at 1058
- April 21st 2005 - VIX down 11.2%
S&P closed at 1159. Ten trading days later it closed at 1172
- July 7th 2005 - VIX down 10.2%
S&P closed at 1197. Ten trading days later it closed at 1227
- Oct 19th 2005 - VIX down 13.6%
S&P closed at 1195. Ten trading days later it closed at 1214
Also, since 1992, this simple system has been profitable in 37 out of 49 occurrances with the average 10 day return being +0.9%.
Oh, and by the way, the VIX dropped 10.71% today.
Souce: EliteTrader.com forum posting.
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