The 'Fear Gauge' Signal Not Seen Since April 2009

The VIX has closed lower the same day as an S&P drop of 1.5% or more just seven times since 2000

by Andrea Kramer

Published on Jun 27, 2016 at 3:41 PM
Updated on Jun 27, 2016 at 4:14 PM

Stocks are on pace to suffer their worst two-day slide since August 2015, as "Brexit" anxiety pushes the broad-market indexes south of their 200-day moving averages. However, while the S&P 500 Index (SPX) is on pace to end the day 1.9% lower, at last check, the CBOE Volatility Index (VIX) -- often dubbed the market's "fear gauge" -- is also set to end the day in the red. According to data from Schaeffer's Quantitative Analyst Chris Prybal, this sets us up for a signal not seen since April 2009.

The VIX has closed lower the same day as an S&P drop of 1.5% or more just seven times since 1990, using 20 trading days between signals. In fact, three of these seven signals occurred at the tail end of the financial crisis, between December 2008 and April 2009. Prior to that stretch, it had been roughly six years between signals, with three between September 2001 and August 2002.

June 27 SPX VIX Signal


The S&P has been positive more than 71% of the time, on average, going out five, 10, and 20 days after a signal -- notably better than its anytime percent-positive during the same time frames since 1990. While the post-signal percent-positive averages start to underperform at the 40-day marker, the standard deviation and average S&P returns after a signal are significantly higher than usual across the board. In other words, this signal has tended to precede both more volatility than usual, as well as bigger-than-average gains.

For instance, the SPX averages a 10-day gain of 4.3% over the 10 subsequent sessions after a signal -- 14 times the anytime 10-day return of just 0.3%, on average. Likewise, the broad-market barometer averages a return of 9.1% 126 days after a signal -- more than double its typical 126-day return of 4.1%. Following the past two signals, in February and April 2009, the SPX was up 36.6% and 29.3%, respectively, going out 126 days.

June 27 SPX VIX Signal 2

June 27 SPX VIX Signal 3


Sign up now for a trial subscription of Schaeffer's Expiration Week Countdown! We'll send you 5 trades for expiration week, each targeting double- or triple-your-money gains in less than 5 days.


A Schaeffer's exclusive

6 Sectors for Summer

Access your FREE insider report before it's too late!


  
 

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories


Research Exposes Shortcut to Stock Market Wins
A simple way to stop picking losers, and start cashing in like Wall Street's elite.
Google Postpones Android Reveal, "Now is Not the Time to Celebrate"
"Now is not the time to celebrate," Google said in a message on its website
ZNGA Zooms to 8-Year High on Billion-Dollar Deal
ZNGA is planning to buy Peak for $1.8 billion
Huge New Legal Marijuana Market Has Shortage Crisis
250 million Europeans have access to medical marijuana. There's already a shortage....