Home Morning Commentary The Big Red Day

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Let us go out on a limb and say that yesterday, Monday February 5, should from now on be known as the “Big Red Day”. Now there was a movie called the “Big Red One” about an army unit in World War II fighting during the allied campaign in Europe during and after D-Day, but that is not the idea here. Rather, we clearly mean that the financial markets as a whole, nearly across the board, were down yesterday. From oil to Bitcoin to the S&P to the Euro, nearly everything was in the red. Notable exceptions were gold and silver, the US dollar, and most impressively the VIX.

As you may recall, we’ve lamented the lack of volatility that has been present in the markets recently. This has been evidenced by the VIX make a persistent series of new all time lows, in concert with the equity indexes making new all time highs. But the VIX short bet was destined to hit a dead end at some point, particularly given that it was unlikely that the markets could go over a year without any significant selloff. Well on Monday, they not only sold off, but the Dow declined more points than it ever had in history. It did not, however, decline the greatest percentage in history, but either way is was a very big decline, it was very sudden, and it clearly caught short volatility traders off guard. Many VIX etfs, such as VXX, made tremendous gains during the day session, and then continued to rally much more AFTER the market closed during the after hours session.

To be clear, most things were down and slid lower after the close of the regular session and also in foreign indexes after the US close as well. At this juncture, we can be assured that bargain hunters will come into the markets in mass as some point given that fundamentals in the global marketplace. This does not mean that Tuesday will be a buying day, but what is does mean is that traders will be more on the alert as the markets are finally shifting around and acting, well, normal. Keep an eye on the VIX for clues to when sentiment is beginning to shift to a more bullish perspective. The VIX closed up +115.60% to settle at 37.32 for Monday’s session.



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