This Feels Very Similar To the 2018 “Top” Before the Vix Blowup

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by cbus20122

Nothing huge here, but I just wanted to share a thought that the recent market behavior feels eerily reminiscent of the recent market in January 2018, with the exception that we are not coming out of a low volatility environment like we were back then. We get a lot of discussion of comparisons to 2000, but I wanted to bring up a more recent time that feels quite similar.

Just Some Anecdotes & Similarities

  • We are seeing some very notable divergences in the market, where the leaders are making up all the attribution of gains, and the laggards are falling further and further behind. This frequently precedes significant drawdowns.
  • We are coming off a period where the dollar going into a notable downtrend in relatively quick fashion, and then started to either form a bottom or consolidation. This too happened in 2018 – dollar strength tends to be risk off, and dollar weakness tends to be great for risk assets.
  • Treasury bonds and other bonds starting to under-perform significantly after a strong upward run where they were previously strongly correlated with risk assets.
  • Volatility starting to grind higher despite the fact that markets are similarly moving higher.
  • Put to call ratio hitting extremely low levels at a time when stocks are strongly overbought.

Thing is, just like 2018, I can easily see markets continuing to grind higher for at least a little while, and we’re clearly not going to see a blowout in a VIX ETN like we did back then. But to say that things feel really stretched right now is a massive understatement.

There are a few other items I’ve been picking up on, but they probably aren’t really worth discussing here.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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