Very Interesting to see such a headline, I don't think people were worried about black swan events 20 years ago because the term black swan just recently came about, before that markets did what they did, now we have terms for such events....so I guess its time to prepare once again.... I thought there was no way to predict black swan events, I thought they were considered a black swan after the fact they had taken place, you know unpredictable market events that no one could predict or prepare for...so what could be the next black swan???? Any hints, suggestions??? Would be interesting to see someone call out the next black swan event before it happens.... Investors fear a "black swan" catastrophic event in the financial markets right now more than ever before. At least according to the CBOE Skew Index, which measures the prices of far out-of-the-money options on the S&P 500. Its goal is to determine the benchmark's tail risk or the "risk of outlier returns two or more standard deviations below the mean," according to the CBOE website. Put simply, traders are buying options that pay off only if the stock market drops a whole lot. CBOE Skew Index since 1990 The measure is up 30 percent since the end of September, including a 10 percent spike for seemingly no reason on Monday. At its Monday closing level of 148.92, the Skew Index is higher now than levels hit in 2006 before the housing bubble popped and 1998 amid the Long-Term Capital Management implosion. It's above a level hit last year as markets sold off aggressively near the end of the year and as fears of an Ebola breakout spread. "Players are pricing in the highest chance of an outlying black swan event in the next 30 days," wrote Roberto Friedlander, head of equity trading at Brean Capital, in a note to clients Tuesday. "The pricing currently is (for) a 15 percent chance of a two standard deviation move in the next 30 days." "So (it's a) yellow flag for sure. Stay alert, stay alive!" Friedlander added. It's unclear what is exactly causing options traders to become so nervous this week. The S&P 500 did post a correction in August on fears of a China slowdown. Those fears are still here. There's tremendous uncertainty as to whether the Federal Reserve will raise interest rates this year or not and whether this rate hike will scuttle the economy. The central bank will decide on this at its two-day meeting beginning Oct. 27, within the 30-day window investors are fearing a market collapse. On the geopolitical front, traders are growing increasingly worried about Russia's emerging presence in the Middle East. And, of course, October is known for market crashes like the "black Monday" collapse 28 years ago this month. But that's true every year. Academic and author Nassim Taleb popularized the term "black swan" during the financial crisis. And apparently this time he is capitalizing on these fears. A hedge fund affiliated with Taleb, Universa Investments, reportedly made 20 percent on a single day in August when the Dow Jones industrial average fell more than 1,000 points before recovering. To be sure, black swan events by definition are supposed to be unpredictable. And a history of the Skew Index shows that its track record is mixed. The average three-month return for the S&P 500 after a skew spike is actually 1 percent, according to Kimble Charting Solutions. "I would say the fears have been overblown and by no means is this smart money," wrote Chris Kimble in a blog post Tuesday. Read MoreStreet veteran: How to trade today's volatility The technical analyst also pointed out that extreme readings in the index have become more frequent in recent years, hurting its predictability. Still, some investors are putting real money on an outlier event occurring in the next 30 days and that shouldn't be overlooked, even if traders use this information on a contrarian basis.
The shifts in sentiment and positioning are so quick and so leveraged that it's leading to this zig zag market...and it appears to show up in all asset classes, pretty obviously...which seems to be the reason why we can see the markets bottom and rally 7-10% in a matter of days and "crash risk" hit all time highs...it seems like another episode of where people will "wait for a pullback" and then the thing will just take out all the longs on the other side...slop and chop, trap and harvest, etc, etc.
Maybe its pricing in another bad day like that recent Monday. Many stock/etf people have GTC Limit orders at flash crash discount prices. A temporary blip. Probably get a fill on 1 share If not ALL. Everyone wants one of those lottery tickets.
feels like we get one of those days every few years, maybe this time around we get another one in the next few weeks....its only considered a lottery ticket until after the fact....if the dow was trading at 14,000 now that wouldn't be a lottery ticket today, you are able to say that now since the dow is up over 1500 points from the lows that day....maybe the next time their is a 1000 point single day sell off it leads to another 500-1000 point sell off the next day until the dow is sitting under 10,000 again....remember the fed is useless with any recession or extreme downturn in the market, QE is not going to work and they can print as many trillions as they want, it wont make a difference. They will probably go Negative on the interest rates and push more QE, but this will lead to an even more devastating situation that the world has never seen before.....
Could be. That also increases the likelihood that this time the market will not simply recover immediately.
I agree. The next pullback will be the one that will trap the longs, imho. People will draw a nice trendline connecting the August and September lows. Price will probably briefly sit at the trendline and bounce a little, offering a glimmer of hope, then suddenly a bus comes out of nowhere like Final Destination.
The longs have gotten away with these bounces for the last 6 years, mostly the last few times though the market has fallen that hard in a day it has rallied right back....again no one on August 24th saw that drop coming and no one saw the 1000 point rally in less than week coming either last week...so when you see the dow off another 1000 points everyone thinks, well the last few times it has dropped this fast it has rallied every single time....maybe the next time it drops that hard it wont rally back as quick, maybe it will take 6 months or a year instead of say a 5-6 weeks.....