Dear Reader,
I’m still in the process of bailing out Gulfport HQ from the 18 inches of rain that dumped on us over just a few short days.
Luckily, the damage is minimal (though I am still having some trouble recording videos today, as you’ll notice).
You know how it is with water – you just have to let everything calm down, let the chaos subside, and eventually, nature will take its course.
The markets are the same way.
Yesterday was an absolute bloodbath. And sometimes, you just have to wait for the storm to die down and the flood waters to recede to really assess the damage.
So here’s where we stand…
Here’s the year-to-date chart for the SPDR S&P 500 ETF (SPY). Over on the left-hand side, it starts around 470. As you go further to the right, you can see the highs that registered back in July at around 565.
Look what’s happened – we’ve dropped 10% in the span of just three days.
And overall, the S&P has given back 55% of its YTD highs.
Why?
Well…
Here’s a chart of the VIX, which registered recent lows of 15.31.
And when I say recent, I mean it. This was last Thursday.
Well, the VIX quadrupled by Monday morning just before market open, spiking over 65! That’s how bad things went from Thursday to Monday.
Now one way you can look at these VIX readings is they give you an idea of the percentage moves that are expected in the stock market.
So that 15.71 is an expected 15.71% move up or down between now and the same time next year.
Remember, the VIX hit 65, which means the market will be either 65% up or down by this time next year.
So what caused this quick, one-day drop?
There are a lot of factors at play, from fears of a US economic slowdown, a spike in the Japanese yen, to a big rotation out of tech stocks, to geopolitical uncertainty abroad and, frankly, right here at home.
We’ll talk about that tomorrow.
Until then,
Good trading,
Tom Gentile
America’s Pattern Trader