Have we readjusted our trading mentality to
expect volatility? We show two charts in
this article to showcase two important historical perspectives. First is the VIX long term chart from the
early nineties and highlighting the how many times the volatility index has
sustained activity above the 25 point range.
Keeping in mind prolonged period periods of time that effect market
volatility and perception, we note that we initially isolate VIX above 25 into
5 periods of time (1998, post 9/11, crisis of 2008, mid-2010, and the sell-off
in 2011). For the time being in
2014, unless we have a prolonged period
of angst or a catalyst that will send traders and investors reeling, the
initial VIX pop to 31 was a the equivalent of a key punch error. This is not to belittle the loss of capital
that took place recently. We are merely
constructing an analysis of the historic VIX pricing.
The second chat we show is the historic SPX
going back to the early 1990’s. We
highlight the significant pull backs, sell-offs, major events such as post
9/11, and the crisis of 2008. We grouped
the 2010 and 2011 sell-off together.
When taking the greater view and more macro approach to this analysis,
we do see prolonged periods of “somewhat” controlled and measures gains in the
overall index. Certainly, one could
intimate that the most recent upward trend is the result of numerous QE’s from
the FED, balance sheet activity from various central banks, and the lack of
Laissez Faire from political entities. We
have had quite a bit of “measures steps” taken on behalf of central bankers.
We show these graphics to perhaps prove a
different point. The most recent
volatility spike, granted for a comparatively short time, indicated a weak spot
in the perception of the markets. What is sometimes discussed in the media and
in the circles of analysts is this notion of calculable and modeled
events.
Granted, the macroeconomic view of late has
become a bit maudlin. Central bankers aligning themselves with politicians to
quell market concern does promote a bit of anxiety in the market place. Put in perspective, traders, analysts,
experienced investors have been through economic downturned many times before
2014. This is a model that has been
worked on for many years and is consistently updated and revamped to
accommodate new variables and nuances.
This is certainly not an attempt to make light of the potential downturn
in markets as they react to potential dove tail risks on the horizon.
Do market participants prefer bad news
rather than confusing news? Perhaps this is more of a philosophical and psychological
question. If news can be quantified and
applied to various models consisting of an exorbitant amount of variables, analysts
will be able to provide directions to traders and managers. When information is
somewhat hazy or could be interpreted in more than a few ways, the result can
be nebulous directional peaks and troughs.
Perhaps it is more interpretation that fact that moves the markets?
Keeping all this in mind, lets circle back
to the this notion of historic volatility.
Traders prefer consistency. Maybe
the perception of consistency? I am sure
that some of our readers will contend this issue by stating that traders enjoy
volatile moves on the broader market. The
opportunity exists to take advantage of volatile moves because of access to
information and various asset classes… perhaps? While this may be true for the
larger brokerage firm that monetize jump in trading activity, an increase in
volatility does tend to promote some level of anxiety among portfolio and money
managers and mutual fund managers.
As market participants and students of the economy
and the markets, one does tend to question whether central banker policies are
in place to support not just market jitters and price jolts, but the notion
that perception of wealth relies heavily on home prices and value of the 401K
account. We witnessed a rather severe
positive move when the Fed Governor Bullard “commented” that the FED should
extend QE. The markets continued their positive
trajectory.
Traders that we speak with on a consistent
basis certainly are growing a bit weary of this perennial support from the fed
and global central bankers. Questions
are consistently voiced as to how long can these actions carry through and how
big can the preverbal balance sheet grow.
Maybe the better question is, what is at stake should the central banker
position become more Laissez Faire? Will
we see the volatility enter the greater market indices? What is the true value of the bid imposed by
the central bankers? Are traders and managers ready to take on a market without
the bid granted by the global central banks?
The general market has become quite comfortable
and dare we say, “content”, with the level of government intervention in the
overall capital market environment.
Certainly, we began to see this take shape during the apex of the
Economic crisis of 2008.
While looking at historical averages and
empirical evidence with respect to market direction and volatility does point
to the general perception that “we” prefer more consistent markets. Having said
this, one does question the duration of such low volatility. Should we be expecting volatility spikes in
the face of active participation by central bankers? Or does this stem from our desire for more
“action” from the markets?
Judging by the recent movements in the
broader markets, we are still under the spell of the QE type commitments from
global central bankers. This no doubt
contributes to the complacency and lower volatility of the markets.
Let’s not expect what is historically not
the norm.
via Zero Hedge http://ift.tt/ZTJcyN Pivotfarm