S&P 500volatility declines, raising the possibility of a rally
VIX fell below 16 below, VIX1D fell 11 below, signaling a sharp decline in volatility. Broadcom’s earnings report and oil prices falling 3% reduced single-stock volatility and dispersion, also affecting index volatility.
S&P 500rose on Thursday despite the 5monthly employment report. The volatility gauge VIX fell below 16 and VIX1D fell 11 below. These numerical changes raised the possibility of a rally after a sharp decline in volatility.
Broadcom’s earnings report significantly reduced single-stock volatility and dispersion. At the same time, oil prices fell 3% during the day. The decline in oil prices contributed to reduced volatility in the stock market.
3month futures-implied correlation rose. As a result, the gap between dispersion and correlation narrowed. In the past, such changes have preceded subsequent movements in the S&P 500.
VIX and VIX1D’s simultaneous decline shows that short-term risk indicators have fallen. A reduction in the volatility of an individual stock led to a reduction in index volatility. The market described this combination as a signal of a rally after a volatility crush.
In oil prices, an inverse head-and-shoulders pattern has been observed. This pattern was analyzed as remaining valid as long as oil prices are above 90.50dollars. Investors view changes in oil prices as an important point to monitor.
In summary, large-cap earnings and oil-price movements drove the reduction in stock-market volatility this week. The narrowing gap between dispersion and correlation coefficients was presented as a point to monitor future index movements. The market is currently in a state of reduced volatility.
Sources: Investing.com
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