Monday, February 27, 2012

What Friday's VIX Action Hinted At

The study below looks at instances of SPX and VIX both closing positive on a Friday. The VIX has a tendency to move opposite the SPX, so when they move in the same direction, it can often suggest an edge over the next few days. Due to calendar effects the VIX has a natural tendency to sink on Friday afternoons as we approach the weekend. So seeing the SPX and VIX both rise is less common on Fridays than any other day of the week. This is why I use Friday as a filter in the below test.

Note that I also included a long-term trend filter. And even in an uptrend the numbers here suggest a short-term downside edge.

1 comment:

Daniel said...

The 'average return' per this study, after 3 days, is -0.34%. Actual 3day return for SPY is +0.07% and for IWM is a ghastly -1.92%; for DIA it's -0.25%. The broad market has seen several hard selloffs during that span. All told, looks like this study is playing out along the most-probable path based on historical analogue.

Thanks for posting these glimpses and drilldowns, Rob.