Market Metastability


Confirmation bias alone isn't enough to explain this market. You also have to add in a healthy dose of irrational optimism with respect to the prospects for future earnings and several flavors of personality disorder. It is almost as if the market is lulled (if you can call 60-70% implied volatility in index options 'lulled') into some conviction that this is the ground state, only to find, at some date in future, that the market is nestled in a false vacuum. Throw enough energy into it the right way, and you're in for a nice bit of vacuum decay.
The market has absorbed so much marginal news as "cause" for celebration, relief and joy (today's housing stats for instance) in the face of darker and more imposing clouds no longer hidden over the horizon, that it just doesn't seem prepared to endure much in the way of a shock. A loud enough sneeze is enough to twitterpate this market beyond all hope of immediate repair.
That said, a slow climb by the indexes today followed by the now trademarked plunge before the close (sometimes with a last-second recovery, sometimes not so much) just tells you buying on the dips is like building on mud.
The VIX, a vastly overused and yet misunderstood metric, has been pegged to "record highs" (whatever that means for an index that hasn't been around for even two decades yet) for days now. And maybe it's just me, but backdating VIX calculations just rubs me the wrong way.
In these circumstances, it seems almost useless to comment that the S&P 500 closed down over 3%. That the Dow was down to 8176. It seems more interesting to point out that the S&P 500 traded in an 5.5% range. The Dow across a similar spread.
Sure, your mom will call you tonight and tell you that she's been watching CNBC to "keep abreast of the markets" in the face of the "chaos." Yes, you'll just have to cope while she tells you what the VIX is ("the 'Fear Factor.,'" she heard Cody talking about it, you know. She always watches Fox Business now. "Just in case.") That's the price you pay for taking her money to go to B-School. You've got to listen to her when it comes to Fox Business.
Take heart. In this market she knows as much as anyone. Including, Cody on Fox Business. Seriously.