Does the SPY and VIX Dropping the Same Day Predict Short Term Market Direction?
Last Friday there was a story in the Wall Street Journal titled “Rise by the Fear Gauge Foretells the S&P’s Fall.” You can read the story by typing the above title into Google and it should come up without asking for you to subscribe.
The article quoted one of the research directors of a major online brokerage firm who said that since 2003, whenever the VIX and market rose the same day, 75% of the time the market was lower within two days.
The bottom line is this research is wrong. If you saw this article and decided to add this to your trading strategies, you may want to remove it. We’re in the midst of contacting the Wall Street Journal to point out the inaccuracy and I’m sure they’ll correct it in due time.
In the meantime, when the VIX and SPY both rise the same day, it means little and you should ignore it no matter what the Wall Street Journal and this research director publish about it.
Every day in our Battle Plan we’ll provide you with incisive, before-the-bell commentary and analysis on the day’s markets to help put your trading in context. We’ll give you suggested entries and exits for short term trading opportunities in stocks, ETFs and options that may be only hours away. And we’ll give you what many other people can’t: model-driven percentages so that you know the historical win rate going back to 1995 for every single trade idea—