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Frank Hogelucht

Frank Hogelucht

Individual investor, trading for a living since 2007, taking a statistical approach in combination with historical market data and addicted to developing market-neutral algorithmic trading…

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Implied Volatility at 5 Month Low

Just a short update after today's close (a more detailed report might follow on Sunday) ...

I just noticed that the S&P 100 Volatility Index (VXO, sometimes called the ´fear index´) closed at a 5 month low (the lowest level since July 26, 2011) on Thursday, January 5 (and posted another 5 month low today) which regularly had (significantly) negative implications when triggered in January in the past.

Table I below shows the SPY's (S&P 500 SPDR) performance over the next five sessions and until the end of January in the event the S&P 100 Volatility Index (VXO) closed at a 5 month low in January in the past (subsequent signals are accounted for; the signal had been triggered in 8 years before 2012).

The SPY closed at a lower level one to five sessions later and at the end of January on at least 2 out of every 3 occurrences, but especially notably is the fact that the SPY did never close 1.0%+ above the trigger day's close one to five sessions later, and has never been up 1.0%+ at the end of the month as well.

It seems that when there is too much complacency in the stock market (at record levels) right at the start of a new year, upside potential for the remainder of the month has not only been limited, but more or less non-existent.

VXO at 5 month low in January
Table I - VXO at 5 month low in January


This signal contrasts with the bullish setup being triggered on Thursday's close (see Consecutive Up Days before Jobless Report). And if in doubt, I regularly prefer to stay out until the market gives clear guidance ...

Have a profitable week,


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