What happens when VIX & the S&P 500 go up together


The S&P and VIX have gone up together for a few days in a row, and I said yesterday :

This unusual correlation could be a short-medium term bearish sign. I’ll publish a study on this tomorrow morning.

Here’s the study.
I looked at what happens when to the S&P 500 when…

  1. VIX doesn’t fall for 4 days in a row (is either flat or up), and….
  2. The S&P 500 doesn’t fall for 4 days in a row (is either flat or up), and….
  3. VIX is below 15 (because VIX is very low right now).

There are only 3 historical cases

  1. February 1, 1996
  2. July 27, 1995
  3. February 16, 1995

February 1, 1996

The S&P 500 began a 6% “small correction” less than 2 weeks later.

July 27, 1995

There was no small correction until half a year later! However, the S&P did swing sideways for all of August before resuming its rally in September. So shorts in August 1995 did not immediately get killed.

February 16, 1995

There was no small correction until 1 year later. This historical cases doesn’t apply to today. In February 1995, the S&P was just climbing out of its 1994 significant correction. Today, the S&P has already rallied for 1.5 years without a small correction.

Expanding the number of historical cases

Let’s relax the study’s criteria. This is what happens when:

  1. VIX doesn’t fall for 3 days in a row (is either flat or up), and….
  2. The S&P 500 doesn’t fall for 3 days in a row (is either flat or up), and….
  3. VIX is below 15 (because VIX is very low right now).

Here are the additional historical cases.

  1. June 8, 2016
  2. January 25, 2013
  3. March 17, 2006
  4. December 28, 1993
  5. October 27, 1993

June 8, 2016

The S&P 500 began a 6% “small correction” on this exact date.

January 25, 2013

The next small correction began 4 months later in May.

March 17, 2006

The next 8% “small correction” began less than 2 months later in May.

December 28, 1993

The S&P began a 9.7% “significant correction” 1 month later in January 1994.

October 27, 1993

Thee S&P made a 3.5% pullback from October to November.

Conclusion

You can see that these results are all over the place.

  1. Sometimes the S&P immediately makes a small/significant correction.
  2. Sometimes the S&P’s next correction was months away.

This is why VIX is not a reliable signal. Also keep in mind that VIX’s history is extremely short. So don’t read too much into VIX.

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