Then on a big down day last Thursday, the VIX rose by over 40% on the day. I ran a scan to look at past times where that occurred, and all of the unique instances I found (only about 6 or 7) had short term rebounds in stocks, and were great short term call option speculation points, with an ATM call option with 5 days until expiration rising 100% or more in all instances.
I looked at some other similar set-ups to what occurred on Thursday and Friday of last week, and the overall picture was a clear bullish short opportunity.
HOWEVER, with today's rebound, that short term bullish potential has been mostly realized, and I have run some scan which show that stocks could be in a brief rebound before a sizeable short term sell off.
The scan criteria which shows the basic idea is:
- daily and weekly MACD are both down (MACD
- both daily and weekly MACD signal lines are above 0
- %k and %d slow stochastics are less than 25
- VIX declines more than 5%
- SPY gaps up 0.4% or more
There were 6 instances that my scan picked up going back to 1995.
4 out of the 6 instances occurred between mid July and mid August.
There was ~4 times greater MAX decline compared to MAX gain at all times frames forward up to 1 month. So this a a really big skew. 3 out of the 6 had MAX declines of 3% or more in the next 2 weeks.
So what we are seeing right now could be a brief little blip before another round of intense selling over the next couple weeks, and even greater over the next 2-3 months.
Since this is a shorter term study in the context of a larger study regarding the put/call ratio sell signal, I am taking this as another entry zone for that study.
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