VIX soared today when the S&P fell more than 5%. VIX’s 9 daily CLOSE RSI is now 94, which is EXTREMELY high.
Here’s the historical study:
What happens to the S&P 500 when VIX’s 9 daily CLOSE RSI exceeds 90.
- February 5, 2018 (present case)
- August 24, 2015. This was the stock market’s exact bottom date.
- September 17, 2001. This was the stock market’s exact bottom date.
As you can see, this is about as high as VIX gets. Even during a bear market (2001), this almost marked the stock market’s bottom. It marked VIX’s exact top, even when the S&P fell a few more days.
August 24, 2015
This marked the exact bottom of the S&P’s 15% “significant correction”. The S&P retested this low in September 2015 and February 2016.
*Stockchart.com’s data is incorrect. The S&P actually fell to 1810 on September 24, 2015.
September 17, 2001
The S&P fell another 5 days before making a major rally in its 2000-2002 bear market. This historical case does not apply to today. The Medium-Long Term Model states that this is just a correction in a bull market.
The S&P might fall a little more, but the risk:reward profile is extremely bullish right now. NOW is the time to buy stocks and short VIX (medium-long term time frame).
On an important sidenote, these types of stock market crashes are sometimes (but not always) followed by retests. I.e. the stock market makes a big bounce or new high, followed by a retest of the crash’s low.
Here’s an example of a 1 day crash that retested and saw lower lows.
Here’s an example of a 1 day crash that did not see a retest or new low.