Today I took a look back for times where the VIX had a big gap up day after hitting its upper Bollinger band the day or two before. I found three of these in recent memory, all from the Great Recession:11/12/07, 1/22/08, and 3/17/08. I found six more cases going back a total of 10 years. That's a total of nine times. In every one of these cases, the VIX was down hard the next day. And checking the last three times, we see that the next day, the Dow rallied hard. The Dow was up over 300 points on 11/13/07, 300 points on 1/23/08, and a whopping 416 points on 3/18/08. And remember, these numbers came in a similar period as now, as the US was just entering a recession, a few months after a big market peak.
And today's VIX gap up is huge. Right now, at 1:35 PM the VIX stands just over 39. Thirty nine! That's up a whopping 22%. In one day. Because one rating agency downgraded US debt from AAA to AA+? Not even AA, but AA+? Does any of this strike you as just a little overdone?
Now you might say, "but this time it's different". Well, one of my rules is that whenever someone says that, you can be sure that this time it's the same as every other time. We'll see how the rest of the day plays out. Right now, I'm not even looking at my trading account. It's just too awful to contemplate.
Monday, August 8, 2011
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Two of the three days you mentioned are on Tuesday. The third is a Wednesday. I suppose that is a good omen for tomorrow.
ReplyDeleteWe're seeing unsustainable downside momentum so I expect a relief rally at some point. Luckily for me, I didn't have time to enter a long position at today's close since index futures are down almost 3% again... If tomorrow closes down, we should be setting several records.
It's a tough one, but I basically agree with you. I'm going to discuss this in tonight's post.
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