Tuesday, April 30, 2013

Weighted-Average Standardized VIX Suggests Passive Market Exposure

Just a brief update on the weighted average standardized VIX model I employ. The model is pointing towards a passive market exposure. As a reminder, the model points to three states of exposure 1) the passive long exposure we currently see, 2) a long exposure defined as being double-weighted the S&P 500, and 3) a short market exposure. Using various criteria and considering certain break points in the data, I developed two general trading strategies using the weighted average standardized VIX data, the results of which are shown in the chart below.


The red and green lines in the above chart are the trading strategies while the blue line is the S&P 500, all since 2000. 

This is not suggest I would use the model results as black-box trading strategy. Far from it. I do, however, think the results of the model can be used in conjunction with other indicators to gauge entry and exit points in the broader market.

Below, you will find a chart of the weighted-average standardized VIX (WAS-VIX) versus the S&P 500.



Generally speaking, a WAS-VIX between a positive 1 and -1.5 suggests average market returns on go forward basis. Currently, the WAS-VIX is -1.1. That said, I am concerned that the Price/Volume Diffusion Index is downward trend, which in conjunction with a rising WAS-VIX has been a forward indicator of poor future market returns.
 

No comments:

Post a Comment