Last Friday the S&P 500 did something it hadn’t done in a very long time (949 trading days to be exact): it went down by more than 3% in a day. Nearly eight months ago we highlighted the length of this non-losing streak as it stood then at 787 trading days (the market seems to like palindromes in this case).
Way back last December we showed that volatility has a tendency to spike right after the breaking of these non-losing streaks. We’ve taken the opportunity to update this chart with new data:
All of this would suggest taking a very cautious approach to fading this current spike in volatility. Not to make too big a deal of this event, but the last time a streak like this was broken was March 2007, just a few months before Bear Sterns shuttered its first two mortgage backed hedge funds (in many traders’ opinions that even was the starter pistol, if you will, to the 2008 credit crisis). Previous breaks have been associated with sustained spikes in overall volatility.
Our first post ever is getting a lot of search traffic today, can’t help but wonder if the 50% peak to trough drop in most VIX futures ETF’s over the last 5 days had anything to do with it? Hard to say…
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Categories: Quantitative Trading