SPX 10-day Historical (Realized) Volatility Triggers a Sell

10-day historical volatility for the SPX dipped under 11 on Friday, its lowest close since mid-April and more than 5 points below 20-day vol at 16.91 (see chart). Historically, this large of a spread between the 10 & 20-day has short-term negative implications for stocks. Each of the last thirty times that 10-day HV dipped 5 points below 20-day HV and hit a 20-day low while the S&P hit a 20-day high are listed below. To qualify for inclusion, it must represent the first occurrence in at least ten sessions…

SPX 10d HV 20-day Low & 5pts Below 20d HV, SPX at 20-day High
09/17/10… S&P500 ??? three sessions later
08/09/10… S&P500 -3.9% three sessions later
06/18/10… S&P500 -2.3% three sessions later
02/19/10… S&P500 -0.4% three sessions later
09/16/09… S&P500 -0.4% three sessions later
07/27/09… S&P500 +0.5% three sessions later
06/11/09… S&P500 -3.5% three sessions later
05/04/09… S&P500 +0.0% three sessions later
04/16/09… S&P500 -1.8% three sessions later
05/06/08… S&P500 -2.1% three sessions later
12/10/07… S&P500 -1.8% three sessions later
11/11/05… S&P500 -0.3% three sessions later
10/16/03… S&P500 -0.4% three sessions later
11/05/02… S&P500 -2.3% three sessions later
08/22/02… S&P500 -2.9% three sessions later
11/13/01… S&P500 -0.0% three sessions later
05/02/01… S&P500 -0.3% three sessions later
01/18/01… S&P500 +0.9% three sessions later
06/15/00… S&P500 -0.2% three sessions later
11/11/99… S&P500 +2.8% three sessions later
03/11/99… S&P500 +0.7% three sessions later
12/29/98… S&P500 -1.1% three sessions later
10/22/98… S&P500 -1.2% three sessions later
07/08/98… S&P500 -0.1% three sessions later
02/06/98… S&P500 +0.8% three sessions later
08/07/96… S&P500 +0.2% three sessions later
04/03/96… S&P500 -2.1% three sessions later
06/03/94… S&P500 -0.7% three sessions later
05/04/92… S&P500 -0.3% three sessions later
05/30/91… S&P500 +0.2% three sessions later
02/05/91… S&P500 +2.3% three sessions later

This pattern has been particularly negative for stocks in recent years. Note that the S&P failed to gain more than 0.5% over the next three sessions in each of the last sixteen occurrences since 2001. Over the past 30 occurrences back to 1991, 21 (70%) led to a lower S&P close three sessions later, significantly above the 45% random chance for a lower S&P three sessions later in the same time frame. The S&P was up more than 1% three days later only two times out of thirty, while it was down more than 1% eleven times.

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

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