Thursday, September 20, 2007

Party Like It’s 1996?!?

Time for an informal poll again. Raise your hand if you keep track of VIX SMAs going back more than 20 days. What about SMAs going back 1000 days? You may think I’m crazy (sometimes I like to pretend to be crazy just to be a little more provocative, so consider the possibility that I’ve merely intentionally unhinged my brain for awhile,) but if you put any credence in the idea of VIX macro cycles and think it is possible for VIX cycles to last 2-4 years, why not look at the VIX’s long-term moving averages?

When thinking about the current investment environment and the year it most closely resembles, one year I do not recall any reference to is 1996. Look at the chart below and consider that 1996 was not a bad time to initiate an aggressive buy and hold strategy. Do you remember what Yahoo looked like in 1996? No, not the stock (which opened at a split-adjusted 1.05 in April and could be had for 0.64 in July), but the 1996 Yahoo web site.

Continuing the wayback machine theme, coming tomorrow: what I was buying in 1997 and why I was buying it.

7 comments:

Anonymous said...

Can you extrapolate as to your reasoning on why you feel this environment is similar to 1996? THe VIX is certainly a lot higher than 1996. Is it something else that you see?

Bill Luby said...

Hi anon,

My apologies; I have a tendency to leave out the punch line. In any event, the particular observation which triggered the 1996 vs. 2007 comparison is the steep crossing of the 48 month SMA by the 6 month SMA. The only previous times the 6 crossed the 48 SMA at such a steep angle were in 1996, early 2001, and the middle of 2002. In other words, two bulls an a bear.

I wouldn't necessarily use this information to place bets, but rather more for something to think about.

Cheers,

-Bill

Anonymous said...

Thanks for this website...I really like it a lot

Charles Butler said...

I don´t have any problem with that reasoning. In 96, more or less, the market broke out of low vol uptrend that had lasted for a long time. Add to that, despite 4 and a half years of steady gains, stocks have yet to yet to see sustained bouts of panic buying. I won´t be betting on it, but it wouldn´t surprise.

Anonymous said...

Hi Bill. As I look at the VIX this Friday morning, at 18.75, it is almost, but not quite 20% below its 10 day average. I looked back over the past few years to see similar occurences and I can only find a couple: 6/29/06, 3/21/07, and 8/24/07. Any thoughts on the signficance of this?

Eric

Bill Luby said...

Hi Eric,

I posted about this subject back when it happened in March.

My data appear to be slightly different than yours (I had the VIX down 18.5% from the 10 day SMA on 6/29/06), but the mean-reverting VIX rise is what past data would likely forecast.

Cheers,

-Bill

Anonymous said...

Ah yes. I had completely forgotten that Adam, you and I had an exchange on this. Thanks.

Eric

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