Russell Abrams, Titan Capital Group’s founder and a volatility trading expert, provided the following commentary about current stock market conditions:
“Recently, stock markets have remained range bound on declining trading volumes, and we expect these conditions to persist in the near future.
“Neither implied nor realized volatility reflect concern for any major macro risks, including a possible technical Greek default and stilted progress on the U.S. deficit talks. We expect that the options market is pricing in more volatility later in the year than it is at present. Although credit spreads are widening, stock markets remain closer to their highs than lows when measured in U.S. dollars. If one were to measure the stock market in ounces of gold or Swiss francs, the market is down for the year so far.”
Russell Abrams added: “While risks to the markets are widely known, their resolutions depend largely on U.S. and European governments, and their actions are unpredictable. Even so, the stock market has already decided that these issues will be resolved without impacting economic growth or hurting investors. With gold and Treasuries both rallying, one side will be wildly wrong.
“In the mean time, the high flying stocks will continue to fly, while the laggards will continue to lag. This is mainly the result of trading-driven quantitative funds, which seem to hold the best performing stocks with no interest in increasing these positions should the stocks suddenly become cheaper.
“These uncertainties will be decided not by economic principles but by policy makers and eventually, voters. Until these issues are resolved, investors will focus on the momentum stories – and the stock market will continue trading in a dull range.”