Monday, June 6, 2011

Re-Examining A Spiking CBI & A Moderate VXO

The Quantifiable Edges Capitulative Breadth Indicator (CBI) jumped up to 8 on Friday. While I generally consider 10 or higher to be strongly suggestive of an upside edge, we’re getting very close, and even readings of this level have suggested bounces. As sometimes happens, while the CBI is suggesting the selloff may be getting exhausted, the VIX (and VXO) are showing very moderate readings. Moderate VIX readings on sharp SPX drops can often mean more selling to come.

But back in July of 2008 I looked at similar scenarios where the CBI spiked without the VXO. The VXO is currently 7% above its 10ma. I have updated some of the studies from that blog below.

First let’s look at times the CBI rose to a high level along with the VXO.

Results here seem to strongly suggest an upside edge. Now let’s look at times where the VXO did NOT spike.

See the big difference? Neither do I. It appears the odds favor a bounce soon with or without a higher VXO.

1 comment:

Jimmy said...

Good post, but what are the results with CBI >8 but <10. Just concerned since these results would include CBI >10 which you have shown to have a great edge already.