Friday, October 17, 2008

VIX New Highs Without SPX New Lows

The VIX put in a huge spike yesterday to another new high. The SPX manage to hold above its recent low before rebounding. Below I looked at long-term VIX spikes that were not accompanied by long term SPX lows and performance moving forward:

In the past there this particular setup has provided traders an upside edge.


Anonymous said...

How does this compare to the VIX making a 100-day high w/o any restriction on the SPY? In other words, what are the results on just buying SPY when the VIX makes a 100-day high and holding for X-days.

Randy Reis said...

There's one important statistic that was left out. Maximum adverse excursion. How much pain did you have to take to achieve those gains.

Laspeyres said...

About 80-85% of your sample period is based in bull markets. I have found that many systems can generate decent buy signals in bull markets and sell signals in bear markets, but few are reliable in calling counter-trend turning points. Is this a valid concern ?

Rob Hanna said...

Anon -

I ran that as well. A 100-day high in the VIX alone suggested an upside edge. It was not as strong as when the SPY didn't make a low. I showed the above results because I felt they were a better representation of the current period.

I will frequntly show baseline results in the Weekly Research Letter. I don't normally do it in the blog, where I like to keep things short and sweet most of the time.

Randy -

In the current market Maximum Adverse Excursion would understate risk.

Laspeyres -

Sure. It depends some on the resulting instances you look at (when did they occur). If there are large samples of data I'll frequently use additional filters, including trend filters (above/below 200ma) to help alleviate this issue. Somewhat related to that, the degree of this selloff has left me with much fewer active studies than I typically have. There simply aren't that many historical comparisons to be made to what has been happening.