Markowski: S&P Down & VIX Up By Year End.

Written by Guest Author | Dec 10, 2020

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Most recent findings from researching the three prior Bullish Sentiment Anomaly (BSA) occurrences since 2017 indicate a 100% probability the S&P will be down, and the VIX up, by year-end.

S&P 500 to decline by 11%.
Call options that trade VIX, VXX, and UVXY to increase by 1,000% to 10,000%.
Shares of the VXX and UVXY mimic the CBOE’s volatility index (VIX) to increase by 50% and 100%, respectively.

Additionally, the anomaly discovery has resulted in the development of the Bull Vix (BVX) algorithm and www.bullvix.com, which is now operational. The Bull Vix’s mandate is to exclusively:

Monitor for future BSA occurrences
Utilize BBT algorithm’s short signals, which have powered Bull & Bear Tracker and Bear Trader alert to trade long and short index ETFs since 2018, to send alerts to trade VIX related VXX and UVXY shares and call options for the VXX, UVXY, and VIX index. Due to increases in volatility for the five weeks following BSA occurrences being highly probable, the conditions for deploying call option strategies for returns of 1,000% to 10,000% within a few weeks are ideal.

Note. Until additional empirical research findings are conclusive, the intention is to utilize the Bull Vix for the 5-weeks after a Bullish Sentiment Anomaly (BSA) occurrence. We recommend Bear Trader for those extended periods between BSA occurrences.

The Findings

The most significant revelations from the ongoing BSA research:

Double leveraged UVXY shares significantly outperformed S&P 500’s double leveraged SDS inverse ETF shares for the three prior BSA 5-week post anomaly periods. Such, even though both utilized the same BBT algorithm.
UVXY shares had an 88%-win ratio vs. 77% for the S&P 500’s inverse SDS ETF from utilizing the BBT Algorithm’s market short alerts.
The lows for S&P and the highs for the UVXY occurred in either the fourth or fifth week after the BSA occurrence.

Note. December 11, 2020, will be the last day of the fourth week since the Bullish Sentiment Anomaly occurred for the week ended November 13, 2020.

Additional Findings

The cumulative gain for the UVXY for the last three post-BSA 5-week periods was 433% vs. 54% for the SDS. The average cumulative gain from trading the UVXY for the past three posts BSA 5-week periods was 144.3% vs. 18% for the double leveraged SDS S&P 500 inverse ETF.

The gains in the above table for the SDS and UVXY do not include the recommendation for inverse VIX related SVXY shares for when profits were taken for the UVXY during the 5-week post BSA occurrence periods. Research is now being conducted on how shares of the SVXY fared during the 5-week post BSA occurrence periods. Based on a preliminary analysis of the SVXY, we believe that the gains for the 5-week periods could be significantly higher.

The table below depicts that the BBT’s short the market or RED alerts were much more useful for trading the UVXY than the S&P 500’s doubled leveraged SDS index ETF during the five weeks after a BSA occurrence. The UVXY had an alert win ratio of 88.8% vs. a win ratio of 77.7% for the SDS for the three 5-week post BSA periods.

The Chart

The chart of UVXY below depicts the potential leverage from trading the call options for VIX related securities. The spikes for the UVXY from its all-time lows, after the Bullish Sentiment Anomalies (BSA) occurrence since 2017, likely netted gains from 1,000% to 10,000% less than 60 days after the deployment of a disciplined call option trading strategy upon a BSA occurrence.

Michael Markowski has worked in Capital Markets since 1977. He spent the first 15 years of his career in the Financial Services Industry as a Stockbroker, Portfolio Manager, Venture Capitalist, Investment Banker, and Analyst. Since 1996, he has worked in the Financial Information Industry and has produced research, information, and products that have been used by investors to increase their performance and reduce their risk. Read more at BullsNBears.com.