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S&P 500 is in a “VixVortex”; Expect Double Digit Decline

The “VixVortex” was discovered as a result of recently completed studies on market volatility and the CBOE’s empirical data for the VIX from 2002 to 2021. The fourth VixVortex for the S&P 500 is currently in progress.

The minimum to maximum decline for the S&P 500 would range from 11.8 % to 35.2 % based on previous VixVortexes. Trading VIX long (VIXY or VXX) and short (SPY) shares via BullVix’s signals will result in gains ranging from 82 % to 116 % (Learn more about BullVix at bottom).

A VixVortex is defined as the volatile-double-digit-percentage-decline-period that occurs after a stock index meets certain criteria, including the occurrence of a Bullish Sentiment Anomaly (BSA), etc. For more information on BSAs, click here.

With the discovery the BullVix algorithm has been programmed to:

  • Identify a VixVortex occurrence
  • Forecast the end date of the VixVortex
  • Monitor the VixVortex to make adjustments to its forecasted end date, if needed

The importance of the VixVortex discovery is illustrated by the yellow highlight in the chart of the 2020 VixVortex below, as well as the charts for the other two VixVortexes at the bottom of the page. Before a surge in volatility happens, investors can now hedge their portfolios.

Even though the BullVix’s results for trading the VixVortexes were based on back tests, it is extremely reliable since it is a derivative of the BBT (Bull & Bear Tracker) algorithm.

For the three years ending March 31, 2021, the BBT gained 183 %, compared to 46 % for the S&P 500. The majority of the BullVix signals used to trade long and short volatility ETFs are a subset of the BBT algorithm’s signals. Some of the Bull Vix’s exit signals for VIXY and VXX are proprietary. 

The table below depicts the performance of the S&P 500, BBT and BullVix algorithms for the two most recent VixVortexes.

From December 2018 to April 2021, the table below depicts the actual gains for the BBT algorithm’s best performing red or short-the-market signals. If the BBT had used BullVix’s VIXY shares instead of SH shares, its cumulative gain would have been 80.54% instead of 33.70%.

There is a theory that the price changes of the VIXY, VXX, and other ETN shares that resemble VIX Futures contracts do not calibrate to the CBOE’s VIX. My research findings indicated otherwise. The WIN ratios for the VIX, VIXY, etc., which mimic VIX futures were identical for all three VixVortexes. For two of the three VixVortexes in the table below, however, the VIX’s gains were substantially higher than the VIXY’s:

The BullVix’s WIN ratio for the three previous VixVortexes ranged from 57 % to 66 %, which is not surprising given that the BBT’s WIN or performance ratio for its signals has traditionally averaged 60 %. The total number of signals and WIN ratios for each of the three VixVortexes are shown in the table below.

The 2017 VixVortex had twice the number of signals and a much longer duration than the 2018 and 2020 VixVortexes, as seen in the table above. Because of the eight BSAs that happened during the 2017 VixVortex, the end date was extended. The VixVortexes of 2018 and 2020 each had one BSA occurrence.

Since November 12, 2020, the long and short signals for the current VixVortex have produced a net gain of 3.8 %. The BullVix has had ten signal shifts, with a 50% win ratio.

My research findings for the VIX and VIX Futures and shares are conclusive.  Excessive bullishness at market peaks builds speculative pressure to a level where only the occurrence of a VixVortex will relieve it.

Finally, based on my previous 2021 discoveries, the likelihood of the S&P 500’s 2009-2021 Secular Bull peak being reached before the end of the 2021 VixVortex is high. The Secular Bull will be replaced by a Secular Bear with a minimum lifespan of eight years and a 45 % decline.  See “DNA Discovery Confirms 2021 Perilous Peak & Secular Bull High for S&P 500”, 01/29/21. The 4:36 second video below, titled “How the stock market transforms conservative investors into greed monsters,” is about the discovery of the “greed accelerator”. The video is highly recommended since one or more greed accelerators have preceded every S&P 500 secular bull peak since 1881.

Notes:

  • No backtests prior to 2002, due to data not being available.
  • According to the research findings the SPY outperformed the SVXY, the inverse of the VIXY and VXX when the BullVix was short the VIX.
  • For the Q4-2018 and Q1-2020 VixVortexes, the BullVix outperformed the BBT by 87.6 % by using the VIXY instead of the BBT’s S&P 500 inverse ETF, SH. For the three years ended March 31, 2021, if the BBT had used the VIXY instead of the SH during the VixVortexes, the BBT would have earned 271 % instead of 183 %, compared to only 46 % for the S&P 500.

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    • Monitors for Bullish Sentiment Anomaly (BSA)
    • Recommends UVXY, VXX shares & call options that mimic CBOE volatility index (VIX) increases after a BSA occurrence

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