Daily Market Research on September 11, 2023 - Surprised at the Low VIX

We discuss some of our research today on September 11, 2023. We paused trading on Friday to do research for a potential shift in the market regime of Stock Indexes towards lower volatility. The question is: Is this just an extra-long low VIX summer with a return to more movement soon or is this the new normal for awhile? We take a look at the data to answer this question and try to determine what to do in either case.

Note: We have new Portfolio Money Management Algorithm Analytics OE MM and DD MM that calculate and plot the longer-term equity curve and drawdown along with the intra-day values that we show in our video today as well.

The main highlight of our research today is, the Average Daily Range of the VIX is 1.14 and at levels consistently seen in 2017. The lowest VIX recorded in history was 8.56 in 2017. It is challenging to try to capture moves in the market when there isn’t much movement, or the moves are more stealth and triggered by different signals than they have been in the past. When VIX gets this low, typical short signal can make good long signals instead. I knew the VIX was low but the correlation to the average daily ranges in 2017 was surprising.

I continued to be surprised in 2017 with lower and lower VIX readings. It seemed unreal and “broken”.

I won’t be surprised if it happens again. We don’t want to burn up capital chasing market moves with momentum strategies if the VIX will remain at these levels for awhile.

We anticipate that some more tone and price movement will come back in Q4 but if it doesn’t we are researching low VIX setups.

The three low VIX potential setups we see are:

1.) SR CounterTrend Portfolios – a highlight in 2017 that trades the stock indexes, gold, silver, crude oil, natural gas, and coffee. It is a low frequency portfolio with its best year in 2017 and a good entry point for this setup during a drawdown.

2.) Overnight strategies – a recent study shows some real strength in strategies that hold positions overnight. When the price moves are small, holding positions longer can put us in a position to capture the gains we need.

3.) CounterTrend day trade strategies – Buying dips are certainly a better approach if the VIX continues to drop.