Like everything else on Wall Street, panic can be quantified. So, is an extremely high reading in one fear index actually a GOOD thing?
Let’s start by looking at my MoneyShow Chart of the Day. It shows the Goldman Sachs Vol Panic Index going back a couple of decades. You can see the index exploded to 9.57 out of 10 last Thursday. Not only was that near the very top of the scale, but the five-point spike that put it there was also the third-biggest rise on record.
Is Panic on Wall Street a “Good” Thing?
Source: Goldman Sachs
I’ve already talked about the forces fueling the selloff, so I won’t rehash them here. I should also point out we’ve recovered SOME of the lost ground – helped along by Monday’s rally, which featured the biggest one-day gain for the S&P 500 Index (^SPX) in seven months.
But what’s most interesting from a trader’s perspective is the potential for positive, post-panic action. On average, the S&P rises 9% in the six months after the Vol Panic Index tops 9.5. You see gains about 73% of the time.
That doesn’t guarantee a rally, of course. But it does put the odds on your side. You also have the “Midterm Miracle” trend working in your favor.
Or in simple terms, YES, panic on Wall Street might be a good thing – if you know how to capitalize on it.
