Quick Win by the Algorithm: VIX Gains Momentum As Investors Grow Fearful

Quick Win by the Algorithm


On November 3rd, 2016, the I Know First algorithm had predicted a bullish forecast for the volatility index (VIX), with a 51.36 signal strength and a predictability indicator of 0.17. In accordance with the I Know First algorithm, the VIX experienced a quick win by the algorithm with a 26.44% return in 14 days.

Quick Win by the Algorithm

The CBOE Volatility Index (^VIX), established in 1993, is a leading measure of market expectations of near-term volatility conveyed by S&P 500 Index (SPX) option prices. I Know First’s algorithm forecasts other indexes related to the VIX, that track volatility such as the VXO.

Quick Win by the Algorithm

The VIX tracks volatility in the market through futures contracts, as represented by the S&P 500 Index. Over the past 14 days, many events have occured that has added fear in the market, spiking volatility.  Over the past couple of weeks the VIX has been inching up signalling either a basic market correction or a possibly the beginning of a bear market. A huge cause for concern is the U.S. election, and the quick turn of events that the market had not priced in. That is, last friday, the FBI director had revealed he will renew his investigation into Hillary Clinton’s email scandal, which has caused Donald Trump’s campaign to have a surge of energy and be tied with Clinton (within a margin of error). Most investors are fearful of Trump and his populist/isolationist policies that are not expected to be business friendly ones. Though the market, or S&P 500 has not only declined due to the elections, many investors believe that the ‘curve ball’ thrown at the market has put high amounts of negative pressure onto it.

In addition to the U.S. elections, commodities prices have as well been declining, specifically crude oil which has seen a decline over the past week as member states of OPEC and non-member states are still debating how best to cut oil output and whether it’s necessary.

Before making any trading decisions, consult the latest forecast as the algorithm constantly updates predictions daily. While the algorithm can be used for intra-day trading the predictability tends to become stronger with forecasts over longer time-horizons such as the 1-month, 3-month and 1-year forecasts.

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