Tags: Wald | VIX | stock | buy

Oppenheimer's Wald: Rise in VIX Signals Stock Rally

Friday, 08 Aug 2014 08:24 AM

By Dan Weil

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Last week's 2.7 percent drop by the S&P 500 index was accompanied by a rise in the CBOE Volatility Index (VIX) to a three-month high.

You might think that's a bad sign for stocks, but it's not. In the last year, the VIX has jumped 50 percent or more from its lows four times, just as it has now, CNBC and Yahoo's Talking Numbers reports. And on each of those occasions, stocks gained shortly afterward.

Ari Wald, head of technical analysis at Oppenheimer, says the same thing is likely to happen now. "Spikes in the VIX tend to indicate heightened investor fear," he told Talking Numbers.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

"From a contrarian standpoint we use that as buy signals, and the numbers agree."

Since 1990, when the VIX has soared more than 50 percent above its 63-day low, and the S&P 500 has traded above its 200-day moving average, as it is now, the S&P 500 has returned more than "twice its average performance over the next two quarters," Wald explained.

The VIX closed Wednesday at 16.66 Thursday, up 1.8 percent from Wednesday.

Many investors are unsure what to make of the stock market's correction and the increase of volatility in recent sessions.

"On the domestic side, we're seeing markets that are see-sawing and still appear to be assessing damage from volatility over the last few days," Lawrence Glazer, managing partner of Mayflower Advisors, told Reuters.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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