I was away from the office for a few days but upon returning it’s nice to see that traders have pushed the equity markets higher as some of the major stock market indices approach their prior highs.
However, at the same time, this has caused the Volatility Index ($VIX) to slide back under 14 and the level of compression within the VIX and volatility market has hit such a level that gives me some pause.
Signs Of Complacency?
Volatility of volatility (as measured by $VVIX) has fallen back to a level that for the last year and half has marked several low points for the VIX.
Here’s a tweet of mine from yesterday, followed by an interesting chart regarding market volatility.
$VVIX back to its ’16 low. This, paired w/ some other pieces of data looks like an interesting setup in volatility for the near future. $VIX
— Andrew Thrasher, CMT (@AndrewThrasher) May 26, 2016
VIX of the VIX (VVIX) vs The Volatility Index (VIX) – Market Chart
This, along with several other indicators that I closely monitor, has me watching market volatility right now. While we head into a long holiday weekend, Jason Goepfert of SentimenTrader notes that since 2010 seasonality after Memorial Day hasn’t been extremely bullish for stocks, “Since 2010, the week of the holiday (next week) was positive only once (+1.2% in 2014). The other five years averaged a loss of 1.9%. None of the six years saw the S&P rally any more than 1.5% at its best point during the week.”
Not that markets must follow their past playbook, but this negative slant of seasonality paired with what I’m seeing in volatility markets could play out in the bears favor in the coming weeks with a pop in the VIX. We’ll see what happens.
Thanks for reading.
The information contained in this article should not be construed as investment advice, research, or an offer to buy or sell securities. Everything written here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned.
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