Friday, November 5, 2010

VIX 6 month Lows and S&P 500 Highs

On 11/4/10, the VIX made a 6 month low, while the $SPX made a 10 day high above its 200 day moving average. Is this a good thing? Let's find out based on historical data.


VIX at 6 month low, SPX 10 day high, buy on close > 200 day MA; sell 'n' days later. $100,000 per trade; 2000 to present.
Net Profit
# Trades
# of winners
% of Winners
Max. Trade % DD
Avg % P/L
W. Avg. Profit
L. Avg. Loss
Profit Factor
Payoff Ratio
1
    (7,382.07)
69
31
44.93
-1.58
-0.11
     357.64
       (486.03)
0.60
0.74
2
    (7,045.02)
59
32
54.24
-2.94
-0.12
     533.56
       (893.29)
0.71
0.60
3
  (11,061.62)
54
30
55.56
-3.62
-0.20
     679.36
    (1,310.10)
0.65
0.52
4
    (8,077.30)
50
25
50
-4.07
-0.16
     936.78
    (1,259.87)
0.74
0.74
5
    (2,823.42)
46
26
56.52
-4.98
-0.06
  1,038.73
    (1,491.53)
0.91
0.70


Over the next 5 days, there appears to be a mild downside bias, just barely. The average % P/L is negative, but not largely.  The win rate is basically 50%. Overall, even though the net profit is negative, this is basically a neutral study.

What happens when we look out beyond 1 week?


VIX at 6 month low, SPX 10 day high, buy on close > 200 day MA; sell 'n' weeks later. $100,000 per trade; 2000 to present.
Exit n
Weeks
Net Profit
# Trades
# of winners
% of Winners
Max. Trade % DD
Avg % P/L
W. Avg. Profit
L. Avg. Loss
Profit Factor
Payoff Ratio
1
    (2,823.42)
46
26
56.52
-4.98
-0.06
  1,038.73
    (1,491.53)
0.91
0.70
2
      3,838.54
38
21
55.26
-6.35
0.10
  1,745.16
    (1,929.99)
1.12
0.90
3
    14,023.73
31
20
64.52
-9.65
0.45
  1,921.37
    (2,218.52)
1.57
0.87
4
    17,325.82
29
18
62.07
-9.92
0.60
  2,712.36
    (2,863.34)
1.55
0.95
5
      3,565.17
26
11
42.31
-10.44
0.14
  3,630.54
    (2,424.72)
1.10
1.50
6
    (6,140.16)
24
10
41.67
-12.15
-0.26
  4,210.28
    (3,445.92)
0.87
1.22
7
      2,231.18
23
12
52.17
-19.31
0.10
  4,354.68
    (4,547.73)
1.04
0.96
8
    24,096.04
23
13
56.52
-19.31
1.05
  5,039.21
    (4,141.37)
1.58
1.22
9
    20,232.94
22
13
59.09
-19.31
0.92
  4,661.25
    (4,484.81)
1.50
1.04
10
    33,088.89
22
14
63.64
-19.31
1.50
  4,774.52
    (4,219.30)
1.98
1.13
11
    31,661.95
22
14
63.64
-19.31
1.44
  5,028.42
    (4,841.99)
1.82
1.04
12
    25,297.01
22
13
59.09
-19.31
1.15
  5,633.14
    (5,325.98)
1.53
1.06


Things change a bit here. From 2 weeks to 3 months out, the odds are positive for higher prices [except for that week 6 oddity]. The further out we go, the better it gets. I wouldn't say this study has powerful upside bias, but there is something there. This is just a simple study to get the mind going.

Footnotes:

Using 10, 20 or 50 day highs in $SPX produce similar results.

2 comments:

volatile smile said...

Well ... that or everything's hovering around 50% because you can't beat the random walk.

Chris C said...

Yep. No edge here. Most of these market studies I do are based on something I've read/heard. I read this on CNBC.com "Low VIX a Warning for Market: Strategist" and figured I'd take a look.
http://www.cnbc.com/id/40027324

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