Even though I have no intention of using my blog for market timing calls, there is something of research and educational value to today’s market sell-off.
The VIX is obviously very stretched as I post this. And historically, extreme VIX stretches have many times (not always…many times) preceded market turns to the upside.
Here’s an indicator to keep an eye on in the future:
1. Since 1995, whenever the VIX moved “intra-day” 20% or more above its 10-day moving average, the market has closed higher 81% of the time using a 5-day moving average as the exit for the SPX (meaning exiting when the SPX closes above its 5-day MA).
2. Whenever the VIX has “closed” 20% or more above its 10-day MA, it has closed higher 85% of the time using the same exit as mentioned above.
Both these results are based upon the SPX being above the 200-day MA on the signal day.
Extreme spikes in the VIX like we’re seeing today are fairly rare and have occurred only a few times a year since 1995.
