Examining The Mini Rally In S&P 500 Volatility (SPY)

Share This Article
January 21, 2018 8:05am NYSE:SPY

vix-fear

From John Rubino: 2017 was literally the smoothest stretch of highway that US stocks have ever traveled. Rising almost every day and seldom falling hard, they made it virtually impossible for investors to lose money.


Here’s the Dow Jones Industrial Average over the past two years. Note how unnaturally smooth the recent action was.

As a result, measures of volatility (i.e., fear) like the Vix fell to all-time lows. Note how the index’s wild swings of the past gradually give way to a steady decline that mirrors the steady ascent of share prices in the previous chart.

Rising prices and declining volatility convinced individual investors (sigh) that stocks will always behave this way. Retail money began pouring into both equities and call options. The following chart is compiled by CNN, and shows the put/call ratio (lower means more bullish) plunging to a record low, which the chart labels “Extreme Greed.”

But today something different happened. Stocks opened massively higher, riding the momentum of last week’s record close. The Dow pierced 26,000 for the first time ever, making all those tech stock positions and call options look like strokes of genius. Then those gains evaporated in a 282 point reversal, one of the biggest of the past few years.

The Vix, in response, jumped by 14%, after an even bigger spike intraday:

Whether this the start of a trend won’t be clear for a while. But what is clear is that today’s reversal and vol spike are consistent with the aftermath of every single previous period of soaring prices and collapsing volatility. By sucking dumb money into the market, blow-off bubble tops eventually beget their opposite.

So while today might or might not be one of those times, when the next bust does come, it will probably start like this.

The SPDR S&P 500 ETF Trust (SPY) closed at $280.41 on Friday, up $1.27 (+0.45%). Year-to-date, SPY has gained 5.08%.

SPY currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 143 ETFs in the Large Cap Blend ETFs category.


This article is brought to you courtesy of DollarCollapse.com.


Read Next


Get Free Updates

Join over 50,000 investors who get the latest news from ETFDailyNews.com!

Most Popular


From Our Partners


Explore More from ETFDailyNews.com

Free Daily Newsletter

Get daily ETF insights from our market experts. Never miss another important market development again!

ETFDailyNews.com respects your privacy.

Best ETFs

We've rated and ranked nearly 2,000 ETFs and ETNs using our proprietary SMART Grade system.

View Top Rated ETFs

Best Categories

We've ranked dozens of ETF categories based on relative performance.

Best ETF Categories