Market Reaches A Volatility Spike

My research indicates that a volatility spike has occurred in the markets. Only on eight occasions since 2000 has the CBOE Volatility Index [VXO] exceeded its 200 day moving average by greater than 50%. The index closed at 18.23 yesterday versus the 200 day moving average of 11.96.

Below is a table which I prepared analyzing how the S&P 500 [SPX] performed 5 and 20 days after a volatility spike in which the VXO exceeded 50% of its 200 day moving average.

While the five days subsequent to this volatility spike was flat on average, 20 trading days after the spike, the SPX was up on average 3.93% and higher in seven out of eight occurrences. The worst performance 20 days hence was just -1.86%, while the best was +9.58%. Thus, I conclude that it is time to back the boat up in index ETFs. I am currently playing this with Spyders (SPY), Ultra S&P 500 (SSO) and Ultra Russell 2000 (UWM).

DATE		CLOSE	+5 TD	% CHANGE	+20 TD	% CHANGE
4/14/2000		1,356.56	1,429.86	5.40%	1,452.36	7.06%
10/12/2000		1,329.78	1,388.76	4.44%	1,400.14	5.29%
9/17/2001		1,038.77	1,003.45	-3.40%	1,089.98	4.93%
7/16/2002		900.94	797.70	-11.46%	884.21	-1.86%
7/19/2002		847.76	852.84	0.60%	928.97	9.58%
6/12/2006		1,236.40	1,240.14	0.30%	1,272.52	2.92%
2/27/2007		1,399.04	1,395.41	-0.26%	1,428.61	2.11%
3/1/2007		1,403.17	1,401.89	-0.09%	1,422.53	1.38%
AVERAGE				-0.56%		3.93%

Source: LakeView Asset Management, LLC

Disclosure: At the time of writing, the author, his family and / or clients of LakeView Asset Management, LLC were long shares of SPY, SSO and UWM.

Comments

[NutritionFacts:]

Er, where's the data for the Date column?

2007 Jun 27 12:40 PM

[Scott Rothbort:]

There was a problem copying the chart from my blog to Seeking Alpha earlier today. Now the chart has been corrected on Seeking Alpha

2007 Jun 27 02:29 PM