Is it something big that is coming?

04.09.2015 / 02:35

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The volatility of the past 10 days was incredible and perhaps a sign of things to come.

The Deutsche Bank strategists took a look at similar historical periods to try and get a read on how markets typically react in the aftermath of such historic events. The Vix, which uses option prices to gauge expectations of volatility, closed above 30 three days in a row early last week, and did the same Tuesday. It is currently trading at around 26.

History seems to suggest that once volatility jumps to 30, it will stay there for several weeks, and in some cases months. That has been the case on seven different periods in the past, according to the note.

The only exceptions that happened during the past 20 years have taken place in early 2000 and late 2007/early 2008. So technically speaking, even periods of quick reversal from a 30pt VIX levels have previously proven to be prescient indicators of more volatility to come down the road.

We would thus caution our readers not to be too quick in dismissing what happened over the past two weeks as simple "overreaction".

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Is it something big that is coming?

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