Market Volatility Bulletin: All's Well That Ends Well

Sep. 05, 2019 12:17 PM ETAGG, DIA, IEF, IWM, QQQ, SPY, SVXY, TLT, XLRE, XLU, ZIV11 Comments
The Balance of Trade profile picture
The Balance of Trade


  • US stocks are pacing hard with SPX nearing 3000 again, while VIX retreats below 16.
  • Haven't we seen this hope and optimism before though?
  • Familiar VX futures pattern reasserts itself, and it's worthwhile to take a look at sectors based on your belief about how sustainable this recovery is.

Market Intro


Between Wednesday and Thursday morning, spot VIX has taken a thrashing. The latest is that the trade talks are making positive progress, and hopes are high for a productive October on that front.

Bond yields (IEF, TLT, AGG) are up, as are the major US indexes (SPY, DIA, QQQ, IWM).

Thoughts on Volatility

As a matter of fact, Stock Cats, I do vaguely recall this cycle occurring across very similar lines over the last two years. What's more, maybe this will not even be the final rotation.

It's been an ongoing source of volatility. I'll contend that it's slowed the overall ascending pattern of equities. Sure we've managed new highs. But there is no comparison between the risk-return profile of 2018-2019 with that of mid-2016 through 2017. Vol is down today and may remain so for some time. But trade will probably rear its ugly head again over the next few weeks as a "newfound" source of panic.

The data is spotty. There's really just no way around this. We get a spat of good readings, and then a dollop of poor readings. At this point a lot centers on what the Fed chooses to do. With pretty much the entire UST yield curve trading below Fed Funds, I really don't see how they could avoid loosening for a quarter or two.

Thanks Eric. It's a reasonable concern, and even gets addressed in CFA material as it relates to criticisms against the Efficient Markets Hypothesis - if nobody is paying attention (i.e. passive investing), then how can markets properly price risk?

The theoretical is that at least some players will actively manage their holdings, and they will arbitrage the gains from research, leaving the markets efficiently priced in the wake of their decision making.


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 time frame, and so my trading activity centers around a negative delta for hedging purposes.

Recommended For You

Comments (11)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.