tag:blogger.com,1999:blog-2676650858658561710.post5585758386813092135..comments2023-11-02T06:14:07.871-04:00Comments on Quantifiable Edges: Is SPX Down Big & VXO Down Bearish?Rob Hannahttp://www.blogger.com/profile/07596674657839065754noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-2676650858658561710.post-63826300705174546492009-04-08T22:58:00.000-04:002009-04-08T22:58:00.000-04:00RobInspired by the way you crunch price data I dec...Rob<BR/><BR/>Inspired by the way you crunch price data I decided to have a go at an analysis of what has happened in the past after very large % increases in the market over the period of a month.<BR/><BR/>(I build excel models to crunch the numbers but normally do very different stuff to your work).<BR/><BR/>I have daily stock market (close price) data going back to 1928. I simply put in a formula to see what, for every day since 1928, the % increase in the market was over 22 trading days before (this may not be perfect as I understand that in the 'olden days' they traded 6 not 5 days a week).<BR/><BR/>Then I used some If formulas to find big increases - of course to get more than results in the 1930s I had to lower the bar as there has been nothing like the past month or so since 1938.<BR/><BR/>I then looked at how the market had done % wise out to 22 trading days later.<BR/><BR/>The rule was that once the 22 day increase had dropped below the specified % the following 22 days would be looked at.<BR/><BR/>I started by looking at all instances where the market had risen 14% on where it had been 22 days earlier. Then I increased this by 1% each time.<BR/><BR/>On the face of it the results looked bearish (I calculated the average, max, min and median for each of the following 22 days).<BR/><BR/>However, I think that my model is flawed in that if a surge followed within 22 days of an earlier surge the calculation on the first surge would cut at out that point and restart counting from the new one.<BR/><BR/>I did all this with excel functions rather than vba (because it is late at night) so I was not able to deal with this scenario.<BR/><BR/>Have you thought of looking at instances where the market has gone up a large x% over 22 trading days and then what happens next? Your models are probably set up to do this while mine are not.<BR/><BR/>Douglas<BR/><BR/>PS I looked at two sets of results - all data and all data excluding the 1920s and 1930s.<BR/><BR/>PPS Looking at your earlier posts this looks similar to some of your earlier posts on new highs under the 200 day MA. However, this is a bit different as it is about a month long sharp rise with not much of a breather on the way. The only time I can see, at a glance, when a rally went on longer and harder and sharper was from the seemingly absurd levels in the summer of 1932 - otherwise it looks to me like we must be due a significant drop even if this is only a rest on the way to higher levels...Douglasnoreply@blogger.comtag:blogger.com,1999:blog-2676650858658561710.post-42444906961201160532009-04-08T12:02:00.000-04:002009-04-08T12:02:00.000-04:00Rob, thanks for the free daily upates. Here's my 2...Rob, thanks for the free daily upates. Here's my 2 cents on VIX:<BR/><BR/>1) VIX or VXO is the leader. shh... this is a secret. So when market down with VIX is down, it means bullish for a market reversal soon (VIX down implying stock should reverse to up soon). Vice versa.<BR/><BR/>2) However VIX is stuck in a big triangle lately. Draw the trend line from High of July 2008, multiple lows in Dec 2008 and Jan 2009, Lows in March. That's a support.<BR/><BR/>Now draw the resistance from High in Nov 2008, through highs in Jan and March, you will see a big triangle. It got to resolve soon.<BR/><BR/>However, there was a recent post on Zero Hedge that VIX need to be interpreted in conjunction with sovereign CDS as more countries are shifting banks/financials toxic risk onto sovereign books.<BR/><BR/>Those countries CDS have jumped a lot lately. In brief, smart money have partially move to a different playground, rendering VIX alone not a good predictive tool.Shawnhttps://www.blogger.com/profile/08155630920582744324noreply@blogger.comtag:blogger.com,1999:blog-2676650858658561710.post-52202307606346358452009-04-08T11:42:00.000-04:002009-04-08T11:42:00.000-04:00Thank you also for the test. Would we not have exp...Thank you also for the test. Would we not have expected a more bullish resolution as the exact opposite (both SPX and VIX raising together) is bearish? - Thus if both fall in concerto it should be bullish?<BR/><BR/>Thanks, JoeAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2676650858658561710.post-51556003120208253682009-04-08T10:03:00.000-04:002009-04-08T10:03:00.000-04:00Thanks for this. I test some of my theories also a...Thanks for this. I test some of my theories also and get counter-intuitive results.<BR/><BR/>I tend to look at what implied volatility is doing over time and I would say that something like this adds to a longer term bearish case even though the one-off events on their own can have an effect that is the opposite...Douglasnoreply@blogger.com