codypd

Why VIX is likely to decline over next few months

CBOE:VIX   Volatility S&P 500 Index
343 0 3
The VIX             ( CBOE Volatility Index             ) is likely to decline over next 4 months based on a pattern repeated on the monthly chart. We just finished February and painted a long engulfing red candle. In prior instances going back 20+ years, such candles have resulted in the VIX             trending downward (in aggregate) for at least 4 months (in many cases longer) after such an event.

I counted the prior engulfing events where the move down was more than 4 points (there are smaller engulfing events on the chart, but they are basically background noise given the nature of what the VIX             measures). I also excluded the multi-year spike events that aren't comparable to the month we just completed. The resulting odds are 6 in 7 chances that we see 4+ months of VIX             decline. The failed event is March 2001. For engulfing patterns I look back up to two candles, but most are the immediate predecessor.

Caveat - we start March at 13.34. Only the April 1994 engulfing candle ended that low. However, the failed instance in 2001 had the engulfing candle end at 21.57 which is higher than the open of the red candle we just completed. In other words, the failed bearish engulfing pattern occurred when the VIX             was still high after the move.
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