Given all that's happened in global markets recently, it's not a surprise the CBOE Volatility Index (VIX) has scorched higher. As of yesterday's close of 19.97, the "fear gauge" had added roughly 65% since only June 23, and sported a year-over-year (YoY) return north of 70%. According to Schaeffer's Quantitative Analyst Chris Prybal, this development has been a promising signal for the S&P 500 Index (SPX) during the past few years.
As you can see, the SPX clearly outperforms its "at-any-time" returns after the VIX reaches the 70% YoY level. The SPX has produced positive five-day returns after this level is hit 86% of the time since 2010, with an average gain of 3.4%. The rest of the time, the SPX has enjoyed a five-day return only 59% of the time, with an average gain of just 0.2%. That's quite the discrepancy.
What's more, each time the VIX has hit 70% YoY since 2010, the SPX has posted positive 63-day and 252-day returns, of 7.1% and 18.3%, respectively. For comparison, the broad-market barometer's at-any-time returns over 63 and 252 days stand at 3.2% and 14%, respectively.
Meanwhile, there tends to be a huge drop in volatility following a 70% YoY VIX gain. In fact, after these instances, the VIX has never been positive on a 63- or 252-day basis, and has given up an average of 31.6% and 54.3%, respectively, during these times. You can see the full results below. Pretty staggering. Also worth noting: the VIX is off 10.8% today at 17.82, as U.S. stocks follow China and Europe into the black.
