Tuesday, July 5, 2011

When the VXO is Extremely Low for 3 Days in a Row

I continue to see a good mix of studies.  The one below is bearish but I could also point to some bullish evidence that is perhaps just as compelling.  Anyway, when the VXO has remained extremelely stretched for multiple days, it typically signals the SPX is about to pull back.  You can see this in the study below, which triggered on Friday at the close, and could be found in the intraday Quantifinder prior to that.



I find the note at the bottom of the table to be especially interesting. It implies that the current setup provides a high probability of a quick pullback, but if that pullback doesn't appear quickly that there is a good chance that the market will continue to power higher.

2 comments:

vix said...

Hi Rob, I am just wondering, do you need to be a registered investment advisor (are you?) to publish studies like you do, or not?

Thanks,
Vlad.

Daniel said...

"..but if that pullback doesn't appear quickly......there is a good chance that the market will continue to power higher."

--Excellent cavaet Rob, the conclusion was there in the data, but sometimes readers are moving quickly, and it was good of you to hilite that. It seems that is exactly what is occurring, after a two day sideways stretch...