May You Live in Volatile Times

Volatility of volatility is making history.

Today, the VIX Index, also known as the Volatility Index, declined for the 10th consecutive trading day. This ties the all-time record for consecutive down days set back in May 2005 and October 2009.


Over the past 10 trading days, the VIX Index has fallen over 41% (from 27.6 to 16.2), one of the steepest 10-day drops in history. Only the collapse in volatility last October saw a larger decline.


The increasing frequency of these swings in volatility is immediately noticeable when looking at a table of both the largest 5-day declines and largest 5-day advances in the VIX Index. While the index itself goes back to 1990, the past two years (2014 and 2015) are the most highly represented.


The increasingly manic nature of the equity market can likely be attributed to many factors. Some of this is a mere normalization as we have transitioned away from the serenity of the low volatility outlier that persisted from late 2012 through the middle of 2014 (for our research on leading indicators of volatility, click here).

But there are other factors at play here as well. The increasingly short-term focus of market participants and growing use of index/ETF products is certainly a contributor. The increasing obsession with the Federal Reserve and the long-awaiting shift away from 0% policy is also likely playing a significant role.

Whatever the reason behind it, the rapidity of these risk-on and risk-off moves are a noticeable change in behavior. The question, of course, is whether it is a change for the better or for the worse. Increasing volatility is often viewed a red flag or a warning sign, especially after a long bull market. At the same time, increased volatility can also bring about opportunity as investors overreact to short-term noise. Depending on your bias, you can spin this as bullish or bearish, but the clearest takeaway here is the change in market behavior. We’re not in Kansas anymore.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.


Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of two award-winning research papers on Intermarket Analysis. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors, an institutional investment research firm. Previously, Mr. Bilello held positions as an Equity and Hedge Fund Analyst at billion dollar alternative investment firms, giving him unique insights into portfolio construction and asset allocation.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.


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