We are currently, in March 2020, in one of the three most volatile markets in history. In terms of absolute price change, it has no peers. In terms of percentage price change, 1929, 1931-1933, and 1987 are all in the mix (but not 2008, which has been surpassed). If we looked back even farther, there would be other markets which were volatile, too (1907, for example), but in this paper we are not looking back past 1928.
Stocks exploded out of a massive oversold condition this week and put together the best 3-day rally since....1931. That sounds a bit ominous, doesn't it? 1931 and 1932 were two of the worst stock market years on record. In any case, the bulls are enjoying the rally, and it has generated some buy signals from our indicators.
This article was originally published in The Option Strategist Newsletter Volume 18, No. 15 on August 7, 2009.
It is generally accepted that volatility decreases in a bullish market phase and increases during a bearish one. Even on a daily basis, CBOE statistics show that 75% of the time, if $SPX moves one way, $VIX moves the other. When longer periods are considered, the percentage changes (see page two for exact statistics). Yet, recently $VIX has begun to increase even while $SPX is blowing out to the upside. This is unusual action, and we’ll try to examine it in this article.
Stocks broke below the December 2018 lows this week, which was a support area that many had expected to hold. This market has blown through every supposed support area there was. The decline held at 2280. The 2280 level was last seen in February 2017. So in a matter of three weeks, the market has wiped out three years worth of gains.
Bear markets move fast, but this is one of the fastest of them all -- on the order of the most volatile markets of all time, 1931-1933.
Markets are in total disarray. I traded through the Crash of '87, and through the Financial Crisis of 2008, and this is worse. On Wednesday night, March 11th, I was asked "Do you think we're going to crash?" My reply was, "I think we already have."
This article was originally published in The Option Strategist Newsletter Volume 16, No. 5 on March 9, 2007.
One of the things that one hears from “old-timers” when the market declines sharply as it has recently, is that money managers are so young they’ve never seen something like this before. Personally, I don’t buy that. You can’t tell me that the hedge funds and large institutional money managers don’t have someone in a supervisory or risk control role that isn’t at least old enough to have seen the 2000-2002 bear market, the October 1997 and October 1998 mini-bear markets, and probably even the Crash of ‘87. At the very least, they saw the correction in May-June, 2006. I think what prompts “old-timers” to say such things is that each time the market peaks before one of these sharp corrections, it seems that these big money managers are buying with total abandon – as if they don’t remember the lessons of the past. And that may be true. Perhaps these money managers were operating during past corrections, but they think this time “it will be different.”