Andrew McCauley

Last week the CBOE S&P 100 Volatility Index (VXO – Original VIX) had a 1 day increase of over 50% on 2 occasions. Since the inception of the VXO in 1986, 1 day gains of greater than 50% are very rare, having been observed only 8 times previously. An increase in volatility of this magnitude, has historically signaled that the market’s weak hands have most likely capitulated, leading to better days ahead for US equity market participants.

As is readily observable from the table below, following spikes of 50% plus in the VXO, forward returns for the S&P 500 Index in the 20-day to 120-day interval were reasonably Bullish. The 60-day (approximately 3-month) interval appears to be the sweet spot and this timeframe coincides nicely with the seasonally positive months of March and April.


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