Two-Day Surge in Volatility Has Bullish Implications

Back-to-back 10%+ gains for VXO has been a reliable indication of a higher S&P three or five trading days later. Out of 29 separate occurrences since 1985, all but two led to a higher S&P three or five sessions later. Even on the two occurrences that failed, the S&P was only down fractionally five sessions later…

VXO Closes Up 10%+ Two Consecutive Sessions
03/16/11… OEX +3.4% three days later
05/07/10… OEX +4.9% three days later
01/22/10… OEX +0.6% three days later
11/06/08… OEX +0.0% three days later
10/10/08… OEX +1.6% three days later
07/27/07… OEX +0.4% three days later
06/07/07… OEX +0.1% three days later
11/27/06… OEX +1.1% three days later
07/13/06… OEX +0.9% five days later
06/13/06… OEX +2.2% three days later
04/14/05… OEX -0.2% five days later (*)
08/06/04… OEX +0.9% three days later
03/11/04… OEX +0.3% three days later
01/27/03… OEX +1.5% five days later
03/12/01… OEX -0.6% five days later (*)
10/12/00… OEX +1.1% three days later
05/03/00… OEX +0.3% three days later
10/13/99… OEX +1.2% five days later
01/12/99… OEX +1.5% five days later
10/01/98… OEX +0.3% three days later
12/11/97… OEX +1.3% three days later
03/31/97… OEX +0.6% five days later
07/23/96… OEX +1.7% three days later
01/10/96… OEX +0.4% three days later
11/04/93… OEX +0.5% three days later
02/07/91… OEX +2.3% three days later
08/06/90… OEX +1.6% three days later
10/19/87… OEX +12.6% three days later
09/12/86… OEX +0.3% three days later

This signal also has longer-term bullish implications.
Looking out three months (sixty trading days) from the date of each signal, the S&P was higher three months later in 26 out of 29 occurrences, averaging a gain of 8%. That 90% accuracy is significantly above the 67% random chance for a higher S&P three months later…

VXO Closes Up 10%+ Two Consecutive Sessions

03/16/11… OEX +0.7% three months later
05/07/10… OEX +0.6% three months later
01/22/10… OEX +9.7% three months later
11/06/08… OEX -9.3% three months later
10/10/08… OEX +0.6% three months later
07/27/07… OEX +3.4% three months later
06/07/07… OEX +0.3% three months later
11/27/06… OEX +3.3% three months later
07/13/06… OEX +10.1% three months later
06/13/06… OEX +6.8% three months later
04/14/05… OEX +2.6% three months later
08/06/04… OEX +3.6% three months later
03/11/04… OEX +2.1% three months later
01/27/03… OEX +8.8% three months later
03/12/01… OEX +8.9% three months later
10/12/00… OEX -3.4% three months later
05/03/00… OEX +2.0% three months later
10/13/99… OEX +16.7% three months later
01/12/99… OEX +10.5% three months later
10/01/98… OEX +27.0% three months later
12/11/97… OEX +11.2% three months later
03/31/97… OEX +18.8% three months later
07/23/96… OEX +13.3% three months later
01/10/96… OEX +10.9% three months later
11/04/93… OEX +5.8% three months later
02/07/91… OEX +6.8% three months later
08/06/90… OEX -8.9% three months later
10/19/87… OEX +9.6% three months later
09/12/86… OEX +8.4% three months later

Given that we’re looking at this signal from a three-month time frame, it’s reasonable to not consider a signal that occurred within a month of a previous signal. If so that would eliminate the 11/06/08 signal, resulting in only two losing signals out of 28, with 24 out of the last 25 leading to a higher S&P three months later.

Categories : Archived Intraday Commentary, Intraday Commentary

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