Daily Commentary - Posted on Friday, January 6, 2012, 11:02 PM GMT +1

2 Comments


Jan Friday 6

Implied Volatility at 5 Month Low

Just a short update after today’s close (a more detailed report might follow on Sunday) …

I just noticed that the S&P 100 Volatility Index (VXO, sometimes called the ´fear index´) closed at a 5 month low (the lowest level since July 26, 2011) on Thursday, January 5 (and posted another 5 month low today) which regularly had (significantly) negative implications when triggered in January in the past.

Table I below shows the SPY‘s (S&P 500 SPDR) performance over the next five sessions and until the end of January in the event the S&P 100 Volatility Index (VXO) closed at a 5 month low in January in the past (subsequent signals are accounted for; the signal had been triggered in 8 years before 2012).

The SPY closed at a lower level one to five sessions later and at the end of January on at least 2 out of every 3 occurrences, but especially notably is the fact that the SPY did never close 1.0%+ above the trigger day’s close one to five sessions later, and has never been up 1.0%+ at the end of the month as well.

It seems that when there is too much complacency in the stock market (at record levels) right at the start of a new year, upside potential for the remainder of the month has not only been limited, but more or less non-existent.

 (click on image to enlarge)


Table I

VXO at 5 month low in January

__________________

Conclusion(s)

This signal contrasts with the bullish setup being triggered on Thursday’s close (see Consecutive Up Days before Jobless Report). And if in doubt, I regularly prefer to stay out until the market gives clear guidance …

Have a profitable week,

Frank


Disclosure: No position in the securities mentioned in this post at time of writing.

________________________________

Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets). Index data (e.g. S&P 500 cash index) does not account for dividend and cash payments.

________________________________

Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

________________________________

Comments (2)

 

  1. GT says:

    VXO : 14.87 low Feb24 / SPX 1365.74 +2.28, hi 1368.92

    VXO : 15.23 (Mar 1 close), closed at a 7 month low (the lowest level since July 26, 2011)
    SPX : 1374.09 + 8.41 (Mar.1 close),
    Your study profiles January, will see how this event in March fares, watching if can’t close 1% or 14 points above or SPX 1388 or better this month

  2. GT says:

    VXO : 15.23 close Mar 1,2012, lowest close since 15.22 close (July 1, 2011), 8 month low,

Leave a Reply

Your email address will not be published. Required fields are marked *