This is from 6/9/2009 Sentiment’s Edge by Jason Goepfert. How well does his prediction hold up? On 6/9/2009 SPY closed at 94.64. On 9/16/2009 SPY closed at 91.64 which is about 3.3% lower. Pretty good!
The VIX was cliff-diving today, despite the small gains in stocks.
This is highly unusual. Over the past decade, on days the VIX dropped 5% or more, the S&P 500 rallied +1.6% on average.
There have been 6 days since October 2007 when the VIX was down 5% or more but the S&P 500 was up less than +0.5%. Over the next week, the S&P was negative every time, averaging -3.6%. The most the S&P was able to rally during the weeks averaged +1.2% while the average drawdown (worst loss) was -5.7%.
So that’s pretty scary, but it also seems pretty specific to our current market. Prior to October 2007, this kind of setup had very little, if any, edge either way, which makes the recent instances more of an outlier than anything.
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