Bullish Implications from the SPX 10-day Historical Volatility

One of the charts being added to the end-of-day section is a chart of 10 and 20-day historical volatility for the S&P500 (see current chart and long-term view). For background on historical volatility, or HV, see this December column from Bill Luby’s VIX & More blog. Unlike the VIX or VXO, which charts implied volatility levels based on SPX and OEX options, historical volatility is based on actual prices of the underlying over the previous X sessions. If we wished to compare HV and IV, we’d chart the 20-day historical volatility with the VIX (see sample). But today I’d like to bring your attention to the unusually low SPX 10-day historical volatility, as it closed at an extremely low 5.93 last Friday. History demonstrates that when HV levels fall to unusually low levels, it’s normally a bullish sign for stocks over the intermediate-term. Since 1990, we’ve seen the SPX 10-day historical volatility fall below the 6.0 level a total of 47 separate sessions. In 38 out of those 47 occurrences, or 81% of the time, the S&P500 was trading at a higher level ten sessions later. That’s significantly greater than the 58% at-any-time odds for a higher SPX ten days later in the same time frame. In only 3 cases out of 47 was the S&P down 1%+ two weeks later, while it was up 1%+ 23 times…

SPX 10-day Historical Volatility Falls Below 6.0
03/19/10… S&P500 ??? ten sessions later
02/08/07… S&P500 +0.2% ten sessions later
01/17/07… S&P500 +0.5% ten sessions later
12/18/06… S&P500 -0.3% ten sessions later
12/13/06… S&P500 +0.8% ten sessions later
11/20/06… S&P500 +1.0% ten sessions later
10/25/06… S&P500 +0.3% ten sessions later
10/18/06… S&P500 +0.1% ten sessions later
08/29/06… S&P500 +1.1% ten sessions later
08/11/06… S&P500 +2.2% ten sessions later
05/02/06… S&P500 -1.6% ten sessions later (*)
12/20/05… S&P500 +1.1% ten sessions later
12/15/05… S&P500 -1.8% ten sessions later (*)
11/20/96… S&P500 +0.1% ten sessions later
09/27/96… S&P500 +2.1% ten sessions later
06/19/96… S&P500 +1.6% ten sessions later
04/29/96… S&P500 +1.1% ten sessions later
01/08/96… S&P500 -0.8% ten sessions later
10/16/95… S&P500 +0.0% ten sessions later
10/05/95… S&P500 +1.4% ten sessions later
08/24/95… S&P500 +2.7% ten sessions later
08/08/95… S&P500 -0.2% ten sessions later
05/17/95… S&P500 +1.2% ten sessions later
05/01/95… S&P500 +2.6% ten sessions later
04/07/95… S&P500 +1.3% ten sessions later
03/30/95… S&P500 +1.4% ten sessions later
02/17/95… S&P500 +0.8% ten sessions later
02/01/95… S&P500 +3.0% ten sessions later
01/30/95… S&P500 +2.8% ten sessions later
01/03/95… S&P500 +2.4% ten sessions later
12/29/94… S&P500 +1.0% ten sessions later
08/03/94… S&P500 +0.8% ten sessions later
07/28/94… S&P500 +1.0% ten sessions later
07/15/94… S&P500 +0.9% ten sessions later
06/02/94… S&P500 +0.9% ten sessions later
01/24/94… S&P500 -0.0% ten sessions later
01/03/94… S&P500 +1.7% ten sessions later
12/29/93… S&P500 +0.8% ten sessions later
12/23/93… S&P500 +0.5% ten sessions later
10/29/93… S&P500 -0.5% ten sessions later
09/08/93… S&P500 -0.1% ten sessions later
08/26/93… S&P500 +0.2% ten sessions later
08/11/93… S&P500 +2.2% ten sessions later
05/10/93… S&P500 +1.2% ten sessions later
01/22/93… S&P500 +2.9% ten sessions later
12/03/92… S&P500 +1.3% ten sessions later
09/08/92… S&P500 +0.7% ten sessions later
03/25/92… S&P500 -3.2% ten sessions later (*)

It’s even more reliable when the spread between the 10-day and 20-day HV’s is closer, but that’s a topic for another day. In the mean time, chalk up another buy signal for the intermediate-term calling for an SPX above 1160 in early April.

Categories : Archived EOD Commentary, End-of-Day Commentary

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