It’s amazing how things can change in such a short period of time. Four weeks ago today, global markets were more chaotic than perhaps any other time since the Financial Crisis in 2008 in the aftermath of the Brexit referendum. On that day, every one of the 25 largest global benchmark indices we track that were open for trading were down on the day. The sell-off from that Friday followed through to the following Monday, and for the US it was an epic reversal in such a short period of time. In the span of two trading days, the S&P 500 went from 1.6 standard deviations above its 50-DMA to 3.2 standard deviations below. In the index’s entire history, there has never been a larger decline in the index’s OB/OS reading in that short a period of time.
As if that move wasn’t major enough, the rebound that followed was nearly as monumental. In the span of ten trading days, the S&P 500 went from 3.2 standard deviations below its 50-DMA to 2.5 above. That 5.7 point ten-day move in the index’s OB/OS reading was only eclipsed one other time in the S&P 500’s history, and that was 8/23/1982. If you know anything about market history, you know that August 1982 was a good time to get long equities.
So, how does the S&P 500 follow-up a twelve trading day period where it saw the most extreme two-day downside move and the second largest ten-day upside move? Like a little kid coming off a sugar high, volatility has seen an outright collapse. After closing above 25 on 6/24, the VIX closed below 12 this past Tuesday, marking the quickest decline from a 25+ reading down to a sub 12 reading on record. Welcome to the dog days of summer!
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