• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

'Volmageddon' Rarely Strikes Twice ... So Soon

Let's look at why fears of the day of doubling volatility we saw nearly two years ago is not likely to happen now.
By HELENE MEISLER
Dec 26, 2019 | 06:00 AM EST
Stocks quotes in this article: IWM, SPY

There is a lot of "recency bias" these days. You know what I'm talking about, where everyone is dying to compare things to the relentless run into year-end 2017. And we know that that run ended up with 'volmageddon.' So I thought we'd take a look at that late 2017 and early 2018 time period to see if there were any similarities.

Let me begin by noting that recency bias tends not to work out. Recency bias is when a particular move in the market is so fresh in your mind that you look for the market to repeat that pattern. We saw a lot of this as we headed into October this year, as so many were looking for a repeat of the fourth quarter of 2018. I wrote about this recency bias situation back then, noting that we rarely repeat something so fresh in our minds.

I'm not saying we won't get a bout of volatility around January, but to look for the same volatility event as we had at the start of 2018 would be unusual. You know that expression about lightening: It rarely strikes the same place twice.

Let me just start with the chart of the S&P 500. The first thing we notice is December was much more up and down in 2017 than it has been now (boxed on the chart). In the 2017, we had a minor pullback in early December, similar to what we saw this year, but the relentless rise off that low this year looks nothing like two years ago to me. Back then we had gaps that got filled. Back then we had days where the market closed on the low. We've seen none of that this year, although from the autumn low through year-end, the S&P was up almost the same amount then as it has been now. So there's that.

Keep in mind that the relentless rise in the S&P back then came in January. So let's look at the stocks making new highs. As we headed into year-end 2017, new highs were good, but not great; they were definitely not expanding beyond the Thanksgiving level. They had stalled out at 300. But now look at January: The peak at just over 400 came in the second week and it was lower highs for the rest of the month -- despite that relentless rise in the S&P. That was a clear negative divergence.


Now we have a market where we can't even get to 300 new highs. The peak was last summer, but since the last few days the S&P has been sideways the drop off in new highs is standard. But should the S&P have another decent push upward with new highs falling off into such a rise, then it would be similar to January 2018.

When it comes to breadth you can see it peaked in mid-January 2018. As we headed into that high in the S&P late in the month, breadth was already weakening. So far there has been no weakening of breadth yet.


The McClellan Summation Index peaked and rolled over mid-month January 2018 as well. As of now it continues to rise.

One of the more interesting charts to me is the ratio of the iShares Russell 2000 Index  (IWM) to SPDR S&P 500 ETF Trust  (SPY) from back then. It peaked in October. It stayed in a steady downtrend that entire fourth quarter of 2017.

Now we have this ratio holding its own. You can see that if it can ever get over that .52 area, it will make a higher high and will cross the (not shown) downtrend line that I have highlighted here countless times. So, this picture is different in that the small caps were not having nearly as much fun then as they are now.

There is one chart that is almost exactly as it was in January 2018: the 10-day moving average of the equity put/call ratio. As you can see it doesn't get down here often. This is a five year chart.

But I want to show you another period when it got down this far; it was actually lower than the current reading of 52%. It tagged 49% in the spring and summer of 2014. The market churned for another month - with an upward bias, then corrected, rallied and then had a serious correction in the fall. So not all super low readings must least to a blow up in volatility, sometimes it just leads to a normal correction.

So what's the upshot of all of this? December 2017 doesn't look similar to December 2019. There were warning signs in January 2018 with fewer stocks at new highs, breadth falling off and the McClellan Summation Index rolling over. I suspect they will warn us again since that is what they are supposed to do.

The biggest concern now for the market is sentiment is giddy and complacent.


Note: This is being written on Christmas Day so there are no statistics or indicators updated past Dec. 25. I will be off until the new year. Happy New Year to all!

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | Stocks | VIX |

More from Stocks

Mega-Cap Tech Keeps Showing Wall Street Who's Boss

James "Rev Shark" DePorre
Jun 1, 2023 4:28 PM EDT

The action broadened on Thursday, but a small group of big stocks still dominated.

New BlackRock Funds Rely on Brainpower

Mark Abssy
Jun 1, 2023 1:14 PM EDT

Artificial intelligence is all the rage, but the BlackRock Large Cap Value and the BlackRock Flexible Income exchange-traded funds offer a bit of human touch.

As Mega Caps Soar, Contrarian Investors Face a Conundrum

James "Rev Shark" DePorre
Jun 1, 2023 11:53 AM EDT

At this point, everyone is painfully aware of the strength in AI names, and they are still chasing stocks like Apple and Nvidia.

Is Chewy Barking Up the Right Technical Tree?

Bruce Kamich
Jun 1, 2023 11:46 AM EDT

Here's where a trade would be a fresh upside breakout and open the way to further gains.

Salesforce Shares Are Pressured, But I'm Not Threatened: Here's the Trade

Stephen Guilfoyle
Jun 1, 2023 11:15 AM EDT

Margins are up, cash flows are roaring, guidance is strong, yet valuation remains an issue.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 06:54 PM EDT CHRIS VERSACE

    AAP Podcast: A Tongue -- and a Market -- Twister: 'Get a Debt Deal Done'

    Listen in as the Action Alerts PLUS Podcast tackle...
  • 12:07 PM EDT STEPHEN GUILFOYLE

    Selling Some of This Surging AI-Related Stock

    This isn't the only name in the Stocks Under $10 p...
  • 09:48 AM EDT CHRIS VERSACE

    AAP Podcast With Portillo's CEO!

    Listen in as we talk with a rising star in the Chi...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login