Always consider hidden risks
SP500 Financials HVol: Volatility Enter Complacency Zone?
July 28 2016 ( From Tradingview, CNN Money)
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Rising Historical Volatility (HVol) on SP500 Financial Sector (SRFI) is most of
the time indicative of a market trend change or acceleration of previous trend.
And falling HVol is usually associated in a bull trend or trendless market.
And rising HVol is usually associated in a bear trend or trendless market.SP500 Financial Sector (SRFI) Peaked at 344.90 on July 23rd 2015 and reached a
Major Bottom at 262.78 on February 11 2016. But the Historical Volatility on SP500 Financial Sector (SRFI) bottomed only on April 4 2016 and traded in a narrow range til the Brexit announcement. From there, HVol spiked and and Financials did correct tremendously in price. Price post-Brexit finally Bottomed at 287.94 on June 27 to rebound strongly til now.
But few of us realize that the the post-Brexit panic was in fact an opportunity for portfolio managers to rebalance at the end of month/quarter from cash and bonds to stocks. Also,the relative flight to quality and liquidity was in strong favor of US Equities. All that kept the Volatility on the high side back then.HVol on SP500 Financial Sector (SRFI) finally peaked on July 5 and tumbled to reach a level not seen since April 2015 and below the previous reversal levels; Volatility is now Entering a Complacency Zone.(See Chart Below - Bottom Panel - Red Trendline - Ellipses)But a few things puzzle me:1) We did have a Breakout in price on the SP500 Financial Sector Index (SRFI) but not on the XLF ETF yet but very close. We should have seen Volatility picking up IF it was a real Breakout?2) SP500 Financial Sector (SRFI) last triple top is lower each time: November 6 2015, May 31 2016, July 27.
(See Chart below, Top Panel - Ellipses)3) Volume on the proxy XLF ETF on a weekly basis was lower last week on the Brexit event then the correction seen in August 24 2015 week, another weak technical set up. (Not Shown)4) In these greedy times (interesting to note the Fear and Greed Index from CNN Money is coming from Fear post-Brexit on June 27 2016 to the Extreme Greed Level now at 82), volatility is historically on the low side.
All those technical factors makes me believe that the post Brexit rally was build on sand for the Financial Sector. Other sectors offer a better risk reward as Financials remains one of the weakest sector within the SP500 since the beginning of 2016.
SP500 Financials HVol: Volatility Enter Complacency Zone? $SPY, $XLF
#Trading #volatility #SP500 #xlf
Top Panel : SP500 Financials ( SRFI - Candles )
SRFI 50 DMA ( Red Line )
SRFI 200 DMA ( Green Line )
Bottom Panel : Historical Volatility ( MA10 - Blue Line )