Typically, volatility expectations on stock indices rise when stocks fall, and vice versa. With that in mind, we are seeing an odd development in the Nasdaq market. Specifically, while the Nasdaq 100 continues to trend higher, hitting a 52-week high as recently as last Thursday, the NDX Volatility Index (VXN) is also trending higher. While it is off of its highs from the “tech wreck”, the VXN has been making a series of higher since it bottomed out – in March.
These circumstances bring us to today’s Chart Of The Day. While the NDX hit a 52-week high last Thursday, it has now been more than 5 months sine the VXN hit even a 3-month low. This is an unusual combination that has only been seen a handful of times since the inception of the VXN back in 2001. Prior precedents include events during the lead-up to (though, not immediately preceding) a few sizable drawdowns in 2007 and 2015.
So is there a message being sent by this “stand-off” here? Why are both indices trending higher? Is the VXN right and stocks are due for another tumble? Or is the NDX correct and we are about to see volatility expectations collapse again? Or are we just grasping for straws here?
In a premium post at The Lyons Share, we address these questions by looking closer at the market action around those previous occurrences in an attempt to come to an informed, quantitatively-backed conclusion – and one unexpected conclusion as well.
The PowerShares QQQ ETF (NASDAQ:QQQ) closed at $144.21 on Friday, down $-1.26 (-0.87%). Year-to-date, QQQ has gained 22.30%, versus a 11.33% rise in the benchmark S&P 500 index during the same period.
If you’re interested in the “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share. Considering what we believe may be a very difficult forthcoming market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!
Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
This article is brought to you courtesy of Dana Lyons, JLFMI and My401kPro.