October 15, 2014

Volatile

There’s no one-word description. The Ides of October arrives serene and tranquil in Denver, the Rockies dusted with recent snow, the sky intensely blue, deciduous trees on the boulevards colored like Jackson Pollock movements on a Wayne Thiebaud landscape.

By contrast, the equity market recalls the scrolling text concluding Clint Eastwood’s Oscar-winning Unforgiven:  “…of notoriously vicious and intemperate disposition.”

One-word summary: “Volatile.”

Why? Ideas abound. Teetering global growth. The threat of an African pandemic. Mideast conflict. Breaking Bad is off the air.  With the Chicago Board Options Exchange’s measure of implied S&P 500 volatility, the VIX, trading over 20 now and up 71% the past month, wringing hands accompany the ringing of opening market bells.

The VIX stood at 12.8 Sept 11, when the ModernIR 10-Point Behavioral Index (MIRBI) dipped below neutral (5.0) for the first time since Aug 4.  Back then, the MIRBI bottomed Aug 8 and turned positive Aug 14. This time, it’s still negative a full month later, marking the longest dour MIRBI attitude we’ve documented since developing the index roughly four years ago.

The MIRBI measures how money moved the past five trading days versus the five before that, in four demographic clusters (Active money, Asset-allocation, Fast Money, Hedging). This continuous sentiment conveyor belt is thus an excellent barometer of the totality of contemporaneous market behavior. It’s neither qualitative nor technical. It’s almost never wrong on market-direction because ups and downs demand the absence or presence of money – which is what it measures (and can change in a blink).

The big question: Why did all the money turn negative?

We have an answer. The US dollar index (DXY) and oil prices inversely correlate at every flare-up in market turbulence the past five years. These two have a core commonality: The dollar as denominator. Oil and the dollar inversely correlate. The single most reliable indicator of movement in the S&P 500 the past five years is inverse correlation with the dollar.

So, we conclude that stocks are volatile because the denominator, the dollar, is in flux.

Why? The Federal Reserve is no longer expanding its balance sheet. It’s evident in weekly releases. Meanwhile, the European and Japanese central banks are continuing to aggressively expand asset purchases with new currency, producing currency disparity.

If stocks are a teeter-totter weighted by financial performance and capital, the best way to introduce chaos – volatility? – is to move the fulcrum. The dollar. Since 2008, the Fed has buoyed risk assets on big dollar-flows. Now, it’s not.

Where’s the new equilibrium? We don’t know. Our data indicate that the only behavioral money up the past five days is speculation – short-term trading. Options expire Oct 16-17 as earnings-reports accelerate. VIX expirations arrive Oct 22, and the traders of volatility as an asset class are back in numbers not seen since at least 2012.

It’s hard to see this picture shifting back to normal with the snap of fingers. Of course, you never know with money.  It’s unpredictable but measurable, both of which are one-word descriptors.

Share this article:
Facebook
Twitter
LinkedIn

Get the Latest News Deliverd to your Inbox

More posts

dreamstime m 42576539
October 7, 2026

The Pinta landed in the bay of Baiona alongside the castle of Monterreal on Mar 1, 1493. Those of you who learned that Christopher Columbus...

dreamstime m 102328582 (1)
September 30, 2026

EDITORIAL NOTE: If you’re reading this edition of the blog and it feels, as Yogi Berra would say, like deja vu all over again, it’s...

dreamstime m 60636703
September 23, 2026

EDITORIAL NOTE: Queridos leitores! Portuguese is a hard language (well, not if you’re Portuguese). So dear readers, this is a Best of the ModernIR blog...

dreamstime m 304833296
September 16, 2026

Trading nearly around the clock will change how you report earnings, public companies. Thursday, I’ll be the last panelist in the final session of the...

dreamstime m 167984305
September 9, 2026

ChargePoint (CHPT) traded 44 million shares Sep 3, almost twice its ledger of 24 million, and rose from around $5 to over $9. Yes, in...

dreamstime m 7424008
September 2, 2026

Soon we’ll be rocking around the clock.  Which raises the question: Does 24-hour trading foster capital formation? By the way, I’ve been invited to sit...