Historically, and a majority of the time, when the VIX hits a new 10-day high in price and is also simultaneously extended above the 10-day moving average, the market as represented by the OEX or the SPX is oversold which leads to a dead cat bounce. Buying the OEX or SPX at the close when such conditions have been met followed by then later selling into the bounce over the next three to five days is the signal here.
With these conditions having been met both on Thursday's close as well as Friday's close of last week, a long position is established for the counter-trend reversal on a short-term basis. The decline last week in price of the SPX has caused an inversely correlated spike in the VIX meeting the two aforementioned requirements regarding the VIX being hyper-extended.
Risks include the longer term potential for lower lows to the MAs such as the 200 day moving average substantially lower at around 1850 for the SPX. Likewise, the lack of a 10% correction in the large cap indices over the past few years and the limits of corrections being 4% to 7% in that same timeframe would imply that the 10% and greater than 10% SPX correction is closer and nearer in time than the bulls would prefer to be the case. Furthermore, recent spikes in the VIX have only reversed with intraday moves above 20 and the VIX intraday high on Friday was still 3 points below that level. Nevertheless, the probabilities are in place for a 3 to 5 day upside bounce in the SPX before any resumption and continuation lower with equity market averages.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in SPY, MGM over the next 72 hours.