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Stock Market Pullback in Periscope - VIX and US10Y

Kristin Alonzo

20-Feb-2018 07:48 AM

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The stock market has been on a calm mode in the last 13 months, December 2016- January 2018, during that period, the worst sell we had was measly 5% then hovered on 3% mid of 2017, record highs streaks on entirety stretch of 2017.

The calm season has ended this February, sell off velocity intraday was 10x or 5% of the median move of .50%  during the quiet period of 2017, whereas the 1% move was a rarity. The sell-off was done at a fast pace, the swift shift from overbought to oversold.  Gauging it on a mathematical metric, intraday is worse than what we had in 2016, as we had -11.86% compared to 9.99% in 2016, closing price basis S&P 500 or  SPX -8.76%, still at the bull threshold of 10%. DowJones headlines from best to worst, as it suffered 2 of 1 k single decline, during the last 2 weeks turbulence.  VIX skyrocket from $10 - $50 or  +400% in 2 weeks, short VIX ETP, the SVXY or XIV lost 90% in value, that lashed back on shorts volatility, all good things come to an end huh!

Recent sell-off spurred by rising inflation or the rally of  U.S. 10yr. Yield hitting 3%.  We also had the Federal Reserve transition, Jerome Powell as new Chairman after Janet Yellen 4 years tenure.  For whatever the reason was, the pullback was long overdue, per mean reversion rule of thumb of daily moving average.  SPX was threading above 50 days moving average entire 2017, the last visit off 200-day moving average was back on Brexit June 2016.  After all, pull back is necessary for a healthy market, it induces volatility and increases trading volumes.
 
As of Friday close, SPX and DIA have recovered 8% from the sell-off, still down 5% from record high while U.S. 10yr at 2.87%. 

See our 2016 Market correction coverage: 

 

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