Quick Win by the Algorithm: VOLATILITY S&P 500 (^VIX)

Quick Win by the Algorithm


On September 2nd, 2016, the I Know First algorithm gave a bullish signal of 12.15 for the ticker ^VIX with a predictability indicator of 0.13. As the algorithm predicted, ^VIX experienced a quick win of 29.92% in only 7 days.

Quick Win by the Algorithm

The Chicago Board Options Exchange (CBOE), or ^VIX shows the market’s prediction of 30-day volatility. It is devised using the suggested volatilities of a wide range of the S&P 500 index options.
Quick Win by the Algorithm

On September 9th, 2016 investors watched as the S&P 500 broke its streak of 52 trading days not decreasing by more than 1% in value from its previous close.  The S&P 500 index closed at $2,127.81, a 2.45% loss. This marked the worst day for the S&P 500 since June 24th, when the U.K surprised the world of its decision to exit the European Union.  Due to the index’s spike in volatility on Friday, demand for ^VIX soared.  The stock rose impressively to $19.07, a price level not reached since June 28, 2016.

The increase in the ^VIX price is due to the following reasons. After the release of a weaker-than-expected August jobs reports, investors speculated the Federal Reserve would leave the interest rate unchanged.  However, comments by the Federal Reserve Bank of Boston president Eric Rosengren, may suggest otherwise.  Such comments as not ruling the idea of increasing interest rates left investors concerned.  If the Federal Reserve increases its interest rate, it will come at time after the European Central Bank decision to keep its rates unchanged.  The increase in interest rate may be inevitable due to a healthier economy and the stock market index prices reaching near all time high, surpassing pre-recession level from 2007. A higher interest rate would make it more expensive to borrow money, thus pumping in less into the economy.  Another factor is the decrease in oil price. The Brent Crude was unable to maintain its price level after reaching $50 a barrel, and has now fallen to $47.33 on September 9th, 2016.

Whether the interest rate will increase as early as September, the Fed’s decision in regards to hiking interest rates will be on the minds of investors.  Perhaps, ^VIX may be a potential hedge to what some may consider the inevitable.

This bullish forecast on ^VIX was sent to current I Know First subscribers on September 2, 2016.