The market was overdue for a sell-off, as we are cited on the cover story of Wall Street Journal's MarketWatch today. And yet there is not much more we can make from the current situation other than the market is tender right now. We have long advised to be cautious with the market -reducing bullish positions- as momentum continued to stretch unabated in recent weeks, and that eventually a respectable selloff would arrive. We are still of the opinion that we are closer to a top, than to a bottom. And while tomorrow's market action may not be dramatic, generally when we see these record riskless streaks. Yesterday was the 109th day without a 1% drop, somewhat of a decline typically follows for the 2nd day (+/- >1% standard deviation). Though more so when the streak is closer to 180 days, as opposed to 110 days. See chart below for the 8 other historic dates with lengthier streaks.
We should look back at some critical insights previously shared on this blog. The first regards convolution theory (or the combinations of ways to sum to a large bear market). The second regards how we have been overdue for a 1%-2% drop, which we have gone on without for way too long (and this has been cited in many nice news such as Forbes and Bloomberg). And the third revolves about how the most severe of all market crashes unfold.
Today we mark ~90 trading days since President Trump's election. And what an extreme difference in volatility (or lack thereof) we've had in risk versus the same ~90 days under President Obama in 2008/2009 (when we worked on the TARP rescue program to stabilize financial markets). Then VIX has nearly completely in highest decile values and some thought it would stay that way. Now in the past several months we've been exclusively in bottom quartile volatility values, and up until today some thought perhaps President Trump could defy market gravity. Clearly that fantasy show is over!
Note the red distribution above -for President Trump- sums to 100%, so does the blue, and so does the grey. We are simply illustrating the VIX distribution in three different sub-sets of time. Now a 109 day streak are so lengthy that it happens to be the 9th longest such streak in the S&P history, per our social media note here - from last week.
And that in turn brings us to the question that now we have seen a 1% drop (-1.24% today, March 21), what comes the tomorrow? And for some guidance on this very extreme of market records, let's see what market changes have occurred the "next day" on the 8 other S&P lengthier record streaks (see top chart for the next day market changes for the 8 streaks that were lengthier than 109 days). Of course the sample size is also low and the direction of movement that can occur is split. Certainly worth being mindful of, as we enter tomorrow, after seeing the steepest declines since October 2016.
We should look back at some critical insights previously shared on this blog. The first regards convolution theory (or the combinations of ways to sum to a large bear market). The second regards how we have been overdue for a 1%-2% drop, which we have gone on without for way too long (and this has been cited in many nice news such as Forbes and Bloomberg). And the third revolves about how the most severe of all market crashes unfold.
Today we mark ~90 trading days since President Trump's election. And what an extreme difference in volatility (or lack thereof) we've had in risk versus the same ~90 days under President Obama in 2008/2009 (when we worked on the TARP rescue program to stabilize financial markets). Then VIX has nearly completely in highest decile values and some thought it would stay that way. Now in the past several months we've been exclusively in bottom quartile volatility values, and up until today some thought perhaps President Trump could defy market gravity. Clearly that fantasy show is over!
Note the red distribution above -for President Trump- sums to 100%, so does the blue, and so does the grey. We are simply illustrating the VIX distribution in three different sub-sets of time. Now a 109 day streak are so lengthy that it happens to be the 9th longest such streak in the S&P history, per our social media note here - from last week.
only 9 times we realized longer riskless streak of 3052 streaks. try as he may, not even Trump can invert gravity :) https://t.co/MOz1NZQf38 pic.twitter.com/6bGmMSKWdn— Salil Mehta (@salilstatistics) March 14, 2017
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