The VIX (Chicago Board Options Exchange volatility index) broke lower, declining by more than 9% to finish at 20.53 yesterday. In addition, the VIX crossed below its 70 day lowest low, making new lows for 2008. The VIX appeared ready to bounce over the last couple of days, but that level was crushed as it broke lower. Noting this break, I thought it interesting to ask, how the VIX has performed in the past when it breaks and crosses this threshold.
Q: How has the VIX performed in the past when it crosses below its 70 day lowest low?
A: According to the 20 previous occurrences of this event, omitting repeat occurrences within 10 trading days, VIX has shown a strong bullish edge that peaks 15 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Wednesday, April 16, 2008) is Wednesday, May 7, 2008.
VIX rallies in 90% of the cases (18 of 20) by an average of 10.0% relative to the close on the event date. The average of the two declines is 3.3%. The overall return of the 20 cases is 8.6%, which, based on the close of VIX on the event date (20.53), provides a target price of 22.30.
Note: The VIX, known as the fear gauge, is an index created by CBOE that measures volatility based on strike prices in the underlying S&P 500 options. Futures and options on the VIX are listed on CBOE and CBOE Futures Exchange.
If you would like to see more details of this historical edge, go to www.markethistory.com
Ryan Soudan is an analyst with MarketHistory.com.
