Analysis: This Tape is Different; The Low Vol Era Might Be Coming to An End

Markets are set to rally early on, which makes a bearish note all the more important. On days like today, people want to be lied to and told everything is going to be all right. Stocks eventually go up and if you hold onto them long enough, you’ll make some money. That’s a bunch of horseshit and you know it.

On the issue of market stress and how traders respond to it. Below are two charts, courtesy of Exodus. The first is during the worst market I’ve ever seen, early 2009. It literally felt like the experiment of western finance was fast coming to an end. Notice how tech was being graded by my algorithms.

And now look at how they’re being rated now. Same God damned levels. The market had enjoyed very shallow sell offs, up until very recently. Something changed.

Now let’s look at volatility, a financial instruments explicitly manipulated by The Fed. We’ve been low vol since 2012. Look at that flatline.

Now look at volatility from 2003 to late 2007. Same shit. We were in a period of low volatility, coincided with an easy tape and bull market.

Two things to note from both charts.

1. The stress levels in the present tape are so extreme, they can be compared to 2009. That’s not normal and should never happen in a bull market.
2. If we are in a bear market, we should presume the period of low volatility will end too. Instead of 10-20 on VIX, we should assume it will trade between 20-75.

Maybe, after a little respite, taking a TVIX position won’t be the worst idea in the world?