The VIX, High/Low Spreads and Market Performance

Includes: IVV, SPY
by: TickerSense

Why is it that we only hear about the Vix when the market is correcting? During last year's rally it reached historic lows; the market quietly went up while the Vix quietly went down.

When the market is going up and the Vix is going down, everything is hunky dory. Profits are made and confidence is high. Below we look at the Vix index versus the point spread between the daily high and low prices in the S&P 500. As we would expect, when the market is volatile it shows up as an increase in the Vix and our High/Low spread.

The point: opportunity.

If there is a larger difference between the highs and lows in the market then there are more intra day trading opportunities. These large swings also give old money a chance to get out of stocks and allow new money in.

Not everyone is able to track the market all day long and make profits off of intra day changes, but it is not always so bad when things get shaken up.

click to enlarge
vix spread

The table below illustrates what the S&P 500 has done since 1990 after the Vix index reaches six month highs or lows. A six month high for the Vix has indicated a good buying opportunity as the market has rallied 3% over the following six months. Conversely, a low for the Vix is a bearish sign and we see that the market is down on average for the following periods.

vix spx