I was away from the office for a few days but upon returning it’s nice to see that trades have pushed equities higher as some of the major indices approach their prior highs. However, this has caused volatility to get back under 14 and the level of compression within the $VIX has hit such a level that causes me to give pause.
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.
$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
This, along with several other indicators that I closely monitor, has me watching 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.
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