#VIXIndicator It was only a “minor” one so not surprising that it didn’t last long or go far… VIX spiked today to reach 25% higher than yesterday’s close, so that cancels the minor upside warning. A close at 17.04 or higher would be a Downside Warning.
#VIXIndicator Usually the Upside Warning is canceled when we get a Downside Warning. But sometimes, like last Monday, the UpW is canceled by an intraday spike on the $VIX, with no DW taking effect. Usually when that happens, the DW comes within the next few days.
But sometimes, the VIX retreats enough to fire a “minor” upside warning… which is measured on the Fib levels from the recent intraday spike. So three closes below the 78.6% line would fire this “minor” signal.
That will happen today provided VIX closes below 14.44.
This has happened only 6 times since 2000. Below is a chart with the performance of SPX in the days after each “mUpW”, ending at the next VIX spike or DW. You can see that it is mostly positive; even the longest one that goes negative spiked pretty high before rolling over.
#VIXIndicator The $VIX just took out the Upside Warning by 1-point. We need to close at 16.97 or higher for this to be a Downside Warning.
#VIXIndicator Since we’re in this pullback I looked back at other times we had a signficant pullback (more than 1%) after an Upside Warning fires. The chart below shows all of the instances since 1999.
Two of them resulted in no new highs, and we dropped significantly before the Upside Warning was technically canceled (the two rows with red in the right-most column). The other times all eventually went higher after the dip.
The center columns show the move 1-day, 2-days, etc, after the UpW. The right-hand columns show the number of days from the UpW to the new SPX high, and the percentage move to get there.
Also note that other than one time last April, this hasn’t happened any other time since 2011.
For me, the $VIX seems pretty unmoved by this week’s volatility and I still think we have higher to go before any major pullback.
#VIXIndicator Because I’m becoming an Excel geek, I made a new chart measuring a performance metric for the Upside Warning. This shows the rise we have gotten from past Upside Warnings in relation to how much the SPX had already recovered before the Warning hit. For instance, the upper-left-most dot represents a 32.2% rise in SPX AFTER the UpW; the UpW hit after SPX had recovered only 26% of its drop (horizontal axis).
I drew the sloppy red line showing the general trend: the less we have recovered from the correction when the UpW hit, the higher we can expect the rise to be after the UpW. Although the red line shows a trend, you can see that most are clustered in the same general area.
And for comparison today, we had recovered 65.5% at the close yesterday, when the UpW hit. (high 2940, low 2351, 20% drop. Close yesterday was 2737, which means we regained 65.5% of the drop).
Bot QQQ Mar 8 175c, SPY 277.5c, IWM 154c. First small layer.
Trading very carefully in case the rally doesn’t materialize.
Added another layer of SPY, QQQ, and IWM calls. Same strikes. Better price. Will hedge with VIX calls near the close if the downside wins today.
#VIXIndicator Here’s the version of the past results I posted back in May. The blue bars with numbers on top represent the percentage move UP from the close of an Upside Warning day to the eventual SPX high before another pullback. The numbers at the bottom of each bar are the percentage move DOWN of the preceding correction, and the date of the Upside Warning. Please ask any questions you have! (you can click on the chart to see it full screen).
As you can see, the Upside Warning is pretty reliable for at least a couple percentage points higher.