The VIX is often referred to as the fear index. When VIX levels are relatively high, that often suggests fear and uncertainty among market participants. Relative highs can be measured a number of ways. Often I will show VIX levels compared to short-term moving averages. But an interesting study from yesterday's Quantifinder looked at 100-day VIX highs that occurred when the SPX was not making 100-day lows. In other words, relatively extreme fear in a market that is not making long-term lows. The study was last seen in the 3/16/11 Subscriber Letter (click here for a free trial). I have updated it below.
The stats seem to suggest a bullish edge that persists for at least three weeks. Much of that edge is realized over the first 1-7 days.
And not only has this setup been followed by bullish inclinations over the time frames shown here, but it has also been a compelling overnight setup. For details on the overnight implications check out today’s post on Overnight Edges.
Lastly, I also noticed this morning that Woodshedder posted a study based on the short-term VIX action last night which also appears to suggest a bullish edge.