Market Volatility Bulletin: Stocks Close Flat Thursday, Jolt Lower Into Friday

Dec. 14, 2018 10:43 AM ETACWX, AGG, DIA, EEM, EFA, IEF, IWM, QQQ, SPY, SVXY, TLT, VXX3 Comments4 Likes
The Balance of Trade profile picture
The Balance of Trade


  • Global growth bogeymen stalk markets on Friday morning.
  • Important sectors of the market are trading at 52-week lows; whence comes the leadership for a renewed push higher?
  • VXX implied vol trades at a significant discount to realized vol.

Market Intro

CNBC: Friday close for Asian markets

Large cap US indices (SPY, DIA, QQQ) whipped around a decent amount on Thursday, but ultimately closed pretty close to unch. The same cannot be said for the Russell 2k (IWM), which shed 1.5% of its value.


S&P futures only a couple sessions ago traded up near 2700, but quickly caved down to the 2630 region. Global growth concerns (ACWX, EFA, EEM) is the proximate cause for the most recent bout of falling prices according to financial media.

VIX prints at 21.6, and simply hasn't done a very convincing job of trading below 19 or so for very long over the past month. I continue to assert that VIX's range is likely to trend higher.

Thoughts on Volatility

The Russell has been puking lately. Contrast this with the past summer, when the index was on an absolute tear. Indeed, the steady blockbuster performance of Russell was credited as being one of the main reasons that realized SPX vol calmed down so much between June and September.

Treasuries have seen something of a reversal of fortune to be sure. A lot of this comes down to chicken-and-egg: I assert that quickly rising yields stokes volatility across a wide array of assets, but then the panic in those risk assets can cause a flight to quality, which has the effect (at least temporarily) of bringing Treasury yields (IEF, TLT, AGG) down once more.

Definitely we're in a bear environment, if not a bear market. Those 52-week closing lows include the events of February through April, months that in their own right were no walk in the park.

Investors seem to be re-writing the script about the potential for a near-term recession. Many companies are therefore taking it on the chin. It's worth bringing up that, for all the fireworks, the S&P basically trades today about where it did a year ago.

Term Structure

Roll yield between the December contract (which expires Wednesday morning at the open) and spot VIX is essentially flat at present. While in absolute terms roll yield is toward the bottom of its range going back to early 2017, the current conditions are considerably more generous to vol shorts (SVXY) relative to October and much of November.

MarketChameleon: VXX implied volatility

VVIX has been trading low throughout most of December, and a look at VXX implied volatility demonstrates that the gap between realized vol and implied vol is reasonably wide at the moment.

The US economy has come under increasing scrutiny from US investors. But I think it is fair to say that the headlines today have it correct, and that growth concerns from Europe or parts of Asia are more likely to cause bumps in the road than for the US.

I find it quite interesting that EFA VIX prints below S&P VIX here. I understand the increased geographic diversification benefit, but the discount surprises me all the same.


If this is your first time reading Market Volatility Bulletin, thanks for giving it a try. If you're a regular, I thank you for your ongoing contributions in the comments section.

Dale Roberts suggests in his comment that if you just keep buying, the market will take care of the rest. This is true so long as the market maintains an uptrend.

The issue is that for most people, what's at stake is their retirement savings. Prolonged and devastating bear markets are absolutely possible, and as such most cannot afford the luxury of just sweating it out. So I think the advice above depends a great deal on where an investor is in his or her retirement cycle.

Thank you for reading.

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This article was written by

The Balance of Trade profile picture
Adam Zingg, CFA offers both practical and theoretical perspectives that will benefit readers who wish to learn more about how to execute  on views or strategies that interest them.  Whatever your overarching philosophy or expertise, I believe there is value in understanding how trading works. This is perhaps especially true for investors, who often take a more philosophical, less mechanical view when it comes to their processes. It is not my goal to:1) convince you which side of the market to be on2) establish your trading time frames3) have you directly follow any specific trade ideasInstead, I aim to demonstrate how complicated sounding ideas can be simplified and accessible.  My hope is to grow your tool kit of resources, and give you healthy confidence to execute your own personalized strategy.  Trading and investment are fascinating, applicable across a wide variety of fields and disciplines.  Greater focus on targeting, execution, and exit strategies build transferable life skills.  In reading my work, it is my goal that you will consistently glean useful insights and build skills that enhance your ability to trade and make important decisions.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I actively trade the futures and options markets, potentially taking multiple positions on any given day, both long and short. I also hold a more traditional portfolio of stocks and bonds that I do not "trade". I do believe the S&P 500 is priced for poor forward-looking returns over a long timeframe, and so my trading activity centers around a negative delta for hedging purposes.

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