Analysts indicate that multiple indicators are closely aligned with the situation in the 2016 election year, and the overall tendency of signals still favors the bulls.
In the last trading hour of the past two weeks, traders surged to purchase stocks, and with the results of the USA presidential election announced, a measure of expected s&p 500 volatility significantly dropped.
Dean Christians, a senior research analyst at SentimenTrader, noted in a report on Monday that historical data shows these developments typically signal good performance in the stock market over the coming months.
$CBOE Volatility S&P 500 Index (.VIX.US)$ Often referred to as Wall Street's "fear gauge," it measures the expected volatility over the next 30 days.$S&P 500 Index (.SPX.US)$The VIX closed below 14 last Friday, reaching a four-month low. Christians pointed out that this is the first close below 14 since the index broke 20 at the beginning of August, when the market experienced a brief but sharp correction.
The VIX peaked over 65 intraday on August 5, and then, as the market calmed, traded within a range of 14 to 23 from summer to fall. Market-driving events like elections helped maintain its highs. Now, with the dust settled from the election results, the VIX has fallen.
Christians stated that the last time the VIX fell back below 14 after breaking above 20 was in the autumn of 2023, after which the s&p 500 index rose by 10% over the next three months. He wrote that history shows when the VIX rises above 20 and then falls back below 14, "stocks perform exceptionally well and consistently over the medium and long term."
SentimenTrader found that in the past 26 instances where the VIX readings fell back below 14 after exceeding 20, the s&p 500 index had only one exception in 2015 where it did not rise a year later. The median increase was 14.2%.
Meanwhile, Christians mentioned that SentimenTrader's "last hour indicator" showed growth for 9 out of the last 10 trading days, and this indicator tracks the cumulative direction of the s&p 500 index in the last hour—suggesting that traders are eager to complete bids.
Christians stated that reviewing the performance of this indicator over the past 21 instances, when the indicator rises on 9 out of 10 days and the s&p 500 index is within 2% of its historical high, the s&p 500 index has risen 90% of the time in the following six months. Although the three-month time frame performed slightly worse— with a rising probability of 81%— it has risen consistently 14 times since 1995.
Both the VIX signal and the 'last hour indicator' were triggered after Trump's victory in 2016, when the US stock market surged through December and consolidated for six weeks before starting to rise again.
Christians noted that the fluctuations in the VIX, combined with the last hour's bid interest, 'suggest a constructive environment favorable to US stocks, with multiple indicators aligning with the situation during the 2016 election year. Currently, despite the typical volatility accompanying the upward trend, the overall tendency of the signals still supports the bulls.'
Editor/Rocky
