Short term model:
Medium term model:
2024-Aug02: The Third major signal to add to the short position in S&P .- 2024-Jul26: The second major signal to add to the short position inS&P.
- 2024-Jul19: Close SPY LONG, & commence SHORT in RSP (S&P500). (neither chart not shown here)
VIX signals
The correlation anomalies of vix vs price reveals subtle signals
vix signals major tops and bottoms
26 july 2024
We have applied our Pair-trading methodology to the relative movement of the VIX (symbols: VXX or SVXY) versus the S&P indexes (SPY and RSP). We have found excellent performance in signalling tops (and bottoms). The fact that the actual simulated trades are highly profitable is minor compared to the efficiency with which most tops (and bottoms) are picked, for use by investment funds who need to hedge their positions in a timely manner, regardless of the actual trade details being signaled. This usually means hedging the portfolio by the purchase of inexpensive deep-out-of-the-money put options expiring, at least, three months out.
However confident we may be in the entry signals, the size of the ensuing movement is never predictable as with all “self-organized to critical” phenomena (e.g. earthquakes, avalanches, market crashes, etc).
Charts produced using Tradestation(R)
The strategy gradually accumulates positions in the signaled direction. The accumulation of short (or long) position results in increasing exposure as the anomalous conditions persist: i.e. the formation of a top (or bottom) continues and/or into the ensuing movement. If a signal is not followed through by a sufficient movement in the requisite direction, it is closed and further layers are not added, thus reducing any loss.
When the strategy is run on weekly prices, we call it the “medium term model”. Daily prices comprise “short-term model”; the “short term model’s recent results are shown further below. Immediately below is the the recent performance for the symbol SPY (vs. SVXY):
The same method can be applied to enter at the bottom of a correction with similarly good results. For the typical long-only portfolio, the buy signals can act as a steepener, adding considerably to the performance.
The latest signal was to close out long positions in SPY on 19-July-2024.
Similarly for RSP, the recent history of long signals is very good:
the Short term model
The same search for anomalous correlations between a stock index and the VIX can be made on any time scale. Below we show the results of both long and short signals combined for SPY v SVXY as of 26-July-2024, where there have been three consecutive short signals:
