We saw the markets reflect some great complacency over the last few months, which helped fuel a rise back near all time highs — the Dow Industrials closed over 18K for the first time in months just last week but was within a whisker of all time highs. The VIX, otherwise known as the ‘fear of the unknown gauge’ was meandering in the low teens, and with such complacency we could see investors/traders piling into the market from the long side. What was there to fear? The Fed is unlikely to raise rates (or might they?), but the brexit issue was coming up quickly.
Market volatility started to rise last week as Europe and then Asia markets started to crater. There was enough pressure on these overseas markets that managed to spill over to the US markets and thus we had a major rise up volatility. The index really soared on Monday, up well over 20% on the day and closing over 20 for the first time since February. Could this be a sign of things to come? If the news is taken badly then perhaps so, but frankly once it is out and everyone knows it we should see the VIX decline one more time as it has in the past. Selling volatility has been the right move on fear spikes – I suspect it will be the right move again.
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