In my earlier “Charts of the Day: Hmm…” post I featured visuals showing the session’s rise of NDX (Nasdaq 100 Index) and VXN (tracks implied volatility of NDX) and noted that days like today — both rallying hard — were rare.
Coincidentally, Bloomberg’s Ye Xie noticed it as well and dug into the weeds a bit to find out just how rare the phenomenon has been, and what it typically spells in terms of near-term risk.
Well, following the other 4 times this (and a few other times that were a little less pronounced) has occurred since 2001, VXN did indeed serve as a legitimate short-term warning signal:
“(Bloomberg) — It’s deja vu all over again. A surge in tech
stocks Monday was accompanied by higher volatility, offering an
eerie reminder of the August stocks melt-up that laid the
groundwork for September’s correction. In fact, it’s only the
fifth time since 2001 when the NDX rose more than 3% and VXN
increased at least 0.8 points. If we lower the threshold for the
NDX to a 2% gain, it’s still a fairly rare occurrence. And the
historical performance in the next two weeks aren’t really
encouraging.”
For us, this is simply short-term stuff and nothing actionable at this point. But it’s worth noting that all occurrences either came amid bear markets or, in one instance (2015), a double-digit correction.