Monday, November 9, 2009

VIX Goes From Overbought To Oversold In 5 Days

The VIX has moved from overbought to oversold quite quickly this past week (based on its stretch above and below the 10-day average). This brings up the question of whether the now “oversold” VIX is suggesting a selloff for the S&P. I took a look at similar past situations.

Results have been inconsistent but risk/reward has generally favored more upside over the coming weeks. This would seem to make sense since what you’re typically looking at in the SPX with the above setup is a strong rebound from a sharp decline during a long-term uptrend.

I am seeing some signs the market is nearing a pullback. The VIX action is not one of those signs.


Phileo said...

Hi Rob,
What happens to the probabilities when this occurs the day after NFP day ?

jgpietsch said...

Sounds like a proxy for explosive short-term momentum?