Being preoccupied with some other work obligations this week I missed an unusual VIX related occurrence. Apparently SPX and VIX both finished the day higher on Wednesday and Thursday. As with everything that appears unusual I got to digging into the numbers. My expectation was that if VIX moved up on a day that the S&P 500 was also higher for two consecutive days this may be taken as a forbearer of a drop in the stock market. Stated another way, if VIX is moving up then there is nervousness around despite the stock market moving up. After running numbers it appears I was sort of right…
CBOE has VIX data going back to 1990. This gave me 5,876 days of VIX and S&P 500 trading days to compare. Over that time period VIX and the S&P 500 moved higher together for two consecutive days 82 times (not including this week). This is 1.4% of the time. I honestly expected a much lower number. Call me goofy, but I love when the numbers surprise me and this was not the only outcome that I was not expecting. I then took those 82 instances of this rarity and checked out what the S&P 500 did over the next 1 to 5 days. The results appear in the table below.
So the top row shows how often the S&P 500 was lower the day after this S&P 500 and VIX two up day occurrence. Each row after that shows how often the S&P 500 dropped over the respective number of days. I was surprised to see that the odds are pretty much 50-50 after the both VIX and the S&P 500 have moved up. That’s where I was wrong. I would have guessed around 70%.
The last two columns represent the sum of S&P 500 performance in points over each time period along with the average performance for each of these anomalies. Although the number of higher or lower days is around 50%, it appears the market drops outweigh the moves higher. I guess the result from all this work is a rare indicator that is slightly bearish.
If you have any ideas on how to slice and dice the data a bit more post a comment here or shoot me an email – email@example.com. If it leads to a follow up blog then some CBOE swag may be in your future.