October 15, 2018   Market Commentary

October 15, 2018 Market Commentary

During the past week, the story that captivated the majority of the attention was the US Equity market’s selloff. Long U.S. equities, especially the large cap tech names, is one of the most crowded trades on the board.

Since 2008, the slow melt up in equities is accompanied by a lower and lower VIX as market participants sell options at decreased volatility.  These fierce selloffs have been met with buying each time after only a few days. The equity market movements are primarily algorithm and AI driven, this can be noted as the average holdings period for a U.S. equity during the 2017 calendar year was less than 5 seconds.

Below are charts of the NASDAQ futures and The VIX futures, courtesy of Barchart.

One Month NASDAQ Futures


Three month VIX Futures


Below is a chart of gold futures, you can see that as the U.S. equity markets were sold, gold futures were flat.  This is another of the crowded trades, but on large risk off days, the portfolio managers take off the largest positions first.  Note, a few days after the equity loss, and VIX surge, gold futures shorts are covering. Historically, when the long equity holders pile out, the last thing the public want to see is gold having a huge gain in the same day.

One Month Gold Futures


Moving on to the Blockchain sector.  I saved this for last today, as digital assets have been extremely quiet over the past month. The implied volatility for the cryptocurrency sector reached levels not seen in many years. The price movement that has occurred was a simple range and this has been extremely rare over the past two years.  Managed money tends to allocate to short and long positions when new prices are reached.

One month Digital Asset total market cap , courtesy of Coinmarketcap.com


One Week digital asset total market cap, courtesy of Coinmarketcap.com

Cryptocurrency was under severe pressure late Friday and just 48 hours later, it was purchased just after some of the Equity Markets in Asia opened.

Sunday night between 6:00 pm and 11:00 pm EST, has played an important role in setting the tone for the week in digital assets over the past few years as cryptocurrency investing has gone more mainstream.  Small details such as digital asset implied volatility decreasing in a week where equity markets volumes were up nearly 100% is foreshadowing a major change in both markets.

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