I just made the following observation on Twitter:
$VIX and $SPX on 3/14: 11.30 and 1,563.23. … $VIX and $SPX at present: 12.90 and 1,653.66
Since 1990, it is a rare occurrence for the S&P 500 Index (SPX) to rally more than five percent over a 40 day or more period, AND the CBOE Market Volatility Index (VIX) to advance by 10 percent or more over the same period. I asked our Quantitative Analyst, Rocky White (@Rocky_SIR), to look at this from a historical perspective and he found that this has occurred only 16 times since 1990. For perspective, when the SPX moved up by 5 percent or more over 40 days, the VIX has declined by 10 percent on 55 occasions. In this particular study, we found that the VIX action really had no bearing on future direction of the SPX, as momentum was the underlying driving factor behind more gains.
We set up the first study as follows:
VIX is up more than 10 percent during a two month time frame and the SPX is up over 5 percent in the same time frame. We set up the study by taking all VIX advances of 10 percent or more , and isolating only the VIX 10-percent moves when the VIX is low (below 15.00), as it is now.
The historical results suggest that if the VIX is above 15, the market may consolidate for about a month, before advancing and outperforming its at-any-time historical returns over a 3-month and six-month period. When this rare occurrence happens in a low- volatility environment, there is a slightly higher probability that the market will advance over the ensuing month and we again see market outperformance relative to the at-anytime returns.
SPX After Signal
SPX After Signal AND VIX Below 15.00 (Low Volatility Environment)
The second study below takes into account a VIX decline of 10% or more after the SPX advances by 5 percent or more over a 40-day period. The subsequent SPX returns don’t look much different when the VIX advances by 10 percent.