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A view from the TOP. Volatility and market highs
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2016 Jul 13, 9:17pm 1,064 views 4 comments
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CBOEtrader
2016 Jul 13, 9:18pm
Sorry guys, my charts are in reverse order to my reference in the description.
CBOEtrader
2016 Jul 13, 9:22pm
Interesting notes: 1)over the last 11 years, a new market high occurs on average every 14.5 trading days.
2)The longest period w/o a new high was from late 2007 through 2013.
3) The recent 7/8/2016 date represented the SECOND longest period w/o a new high at 285 trading days since.
4)The market has a statistically significant tendency for lower vol coming off market highs for 60 days at which point daily moves start to show signs of extra volatility. Be aware that the upmoves tend to come in clumps. Therefore the weekly and monthly realized vols will be higher than the daily realized vols into the grinding bull markets.
5)The largest move within 60 days from a new high over the last 11 years was a 3.9% downmove in february 2007.
The pics above DO NOT show all the data, since i have my filters on. Sorry, I cant post everything:)
_
2016 Jul 14, 12:45pm
The work is my own. How else would i share? Oh well
A lot Euro drama on that chart.. perfectly read able too ;-)
I stumbled across this shit doing standard daily research for my work, but FUCK man i cant stop looking at this. Lemme explain what I'm seeing.
My entire market perspective is about environment. What is happening now, and to what filtered subset of historical data does that compare?
But new highs, by definition have never happened before. So the relevant question: how does the market perform after reaching new highs?
On average since 2005 the SPY (my research product) has reached a new high every 14.5 trading days. Since these come in clumps, we examine comparable market moves between equivalent days since the previous market high. The first chart shows how tightly clustered moves are coming off of new highs... There is a tight cone that starts to break down around day 50. At 60 days out (3 months in trading days since the most recent market high) entropy sneaks in as the market realizes increasing volatility levels.
In the second chart I compare the 30 day atm volatility of the SPY, to the % drawdown from the previous high. Everyone knows there is a rough inverse relationship between equity market levels and vol levels, but the relation is nonlinear. However, this chart comparing 30 day atm vol NOT to absolute equity levels, but rather to % drawdown from the last high is almost a perfect nonlinear transformation (mirror image). I spit out my fucking cherios when i saw it. The base levels since new high of 0% down, equates to the base level of around 9.6% 30 day atm volatility.
IV levels move higher in a mirror like fashion to the drawdown% from market highs.
And to boot, monday of this week represented the longest drought (285 days) since the last new high we've seen since the 2007-2013 1363 day drought.