VIX surges 20% as fear returns …

Major markets sold off today, with the VIX (CBOE Volatility Index) up more than 20%. From a historical and statistical perspective, when the VIX surged 20% or more on a single session in the past, the market regularly turned around the then following session recovering at least a part of it’s previous session’s losses.

Table I below shows the SPY‘ historical performance (since 01/01/1990) over the course of the then following five sessions after the VIX surged 20% or more on a single session in the past.

Interesting to note that since 1991 (32 occurrences) the SPY never lost more than -0.51% on the close of the then following session (the exception of the rule was the year 1990), and closed higher on 27 out of 37 occurrences (thereof higher on the last 10 occurrences) on the then following session. With a historical Profit Factor of 5.13 and Distribution of Returns at 70% (the median trade shows a significantly higher rate of return / positive magnitude of change than the median trade (=50%) within the at-any-time distribution of returns), odds are heavily lopsided in favor of a positive outcome (means a higher close) on Friday’s session.

Successful trading,
Frank

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

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