How Markets Really Work – quantitative guide to stock market behavior [PDF]

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How Markets Really Work – quantitative guide to stock market behavior Book

When the VIX closes more than 5 percent below its 10-period moving average, the market has greatly underperformed the averages. In fact, in all cases, the market lost money over the short term. This finding is extremely significant because it identifies the times when the least amount of money has been made over the past 20+ years.

For example, over the 20+-year period, the VIX has closed 5 percent under its 10-period moving average of approximately 1,432 trading days. The SPX rose over 220 percent over this 20+-year period but none of the cumulative net weekly gains have occurred while the VIX closed 5 percent under its 10-period moving average. This information confirms that the VIX can identify overbought markets and helps you identify the times that you should be aggressive in locking in gains and/or avoiding long purchases