When volatility died down twice last year, stocks crashed, writes Simon Maierhofer.
The U.S. stock market is calm. I dare to say that it’s suspiciously calm. But is this the calm before the storm?
That means during regular trading hours, the S&P 500 did nothing more than digest overnight gains, and actually gave back more than 10 points. The purple lines below outline those period of contraction . Twice before — in January and October 2018 — the VIX jolted out of its wedge. As the dashed red lines show, this caused severe losses for the S&P 500.
It’s said that if something is too obvious, it’s obviously wrong, but this pattern is also too obvious to ignore. Instead of spiking above the red trend line resistance, the S&P 500 has been climbing up the trend line like it’s clipped to a zip line. The result is the same: The S&P 500 is nearing the open gap.
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