I was going to post the chart below as candidate for the most boring chart of the year alongside the USD/CHF but a wee bit can happen in 24 hours.
The S&P 500 has had no net effective gain since 06/2015 which does make it a long time between drinks for long equity traders. When I logged in this morning I noticed that the VIX had decided to spike as the broader US market slipped. As you can see below the VIX spiked both intraday and for the trading week. Up until now the VIX had been showing a complete lack of energy but it appears as the US election date gets closer the hands on the tiller are becoming a little nervous about the possible outcome.
Today’s action shows that the bears were in charge, hence the lift in the VIX. At least the market recovered from its lows.
The question that arises for traders is what to do in situations like this – you have a market moving before a major political event and this may of may not provide opportunities. The most recent parallel we have to draw from is the BREXIT vote in June. But this was a slightly different situation in that the Pound was already locked into a downtrend and the market was blindsided by the success of the Leave vote. My perception here is that the situation is a little more nuanced, you have a market that is at present stagnant – although that may change and a growing uncertainty about the outcome. Certainty has been replaced with uncertainty and this is general is bad for markets.
As a rule I dont short equity indices simply because of their profound upward bias and I see no evidence to change this policy. So this becomes a matter of perspective based upon a quick look back at recent history. In June the S&P500 slipped below 2000 briefly and earlier this year it looked as if it would struggle to hold the low 1800’s. Therefore whilst we have a bit of action in the short term it is necessary to remember that markets go up and they go down. Most importantly there is nothing we can do about either events. However, you can decide how and when you play and my rule has always been that if I dont know then I dont do.
