SPX about to Bottom and Rally Sustainably?

According to SentimenTrader even though the SPX was down for a fifth straight day yesterday the VIX was only up ~7.7% over the same period.

Dating back to 1990 when the SPX is down for five straight days and the VIX is up less than 8% over that same period the SPX is up on a forward 1 week, 2 week, 1 month and 3 month basis at least 80% of the time with average gains at each interval +240, +250, +250, and +410 bps, respectively.

What is most interesting is when this signal has occurred the last three times, presented in the chart below – each has been at a major bottom since March 2009 with forward returns much larger than the average gains presented above.

In two of the three instances (March 2009 & November 2011) the SPX registered additional downside over the ensuing few days b/t ~250-350 bps (measured from closing value day of signal until ultimate intra-day low).

So far today’s intra-day low was ~120 bps below yesterday’s close implying the potential for additional downside into the ~1295-1305 range.

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