Only the "crashiest" of precedents

Jason Goepfert

2020-03-06

We've seen quite a bit of evidence since last week that this is one of the most volatile periods in decades. In some respects, it's the most volatile on record.

Traders are faced with yet more uncertainty heading into the open, with futures down more than 3%. Below, we can see every time they gapped down at least 3% when the VXO (the "old VIX" that has more history) had hit at least 45 the prior day. These are panicky gaps open when traders were already panicked to begin with.

This has only happened during the "crashiest" markets, and there were a couple of very scary precedents on there.

Anyone buying into the fear had to endure some of the most volatile swings since the inception of the futures, not appetizing especially if trading a leveraged instrument like the futures are. At least over the next four sessions, they gained ground every time but once...though that "once" would have torpedoed a leveraged trading account.

There were quite a few more instances if we look for a smaller gap down, like 2%.

If we want to assume that we're not in the midst of the second coming of the Great Financial Crisis and commit the sin of excluding 2008-09, then the returns look pristine.

This would mark the 9th time in the past 10 sessions that futures had an intraday high or low that was more than 2.9% from the prior day's close. This is 2nd only to the crash of 2008. The only other times that reached even 8 days were around the bottoms in 1987 and 2002.

This would also mark the 5th session in the past 10 with an opening gap of more than -1.5%. That's tied for the most all-time, triggering only in October-November 2008 and April 2009.

Based on these measures and others we've looked at over the past week or so, we're seeing a historic level of volatility, wholesale selling pressure, and panicky behavior. Essentially what it comes down to is that a buyer (or holder) here is betting that this panic is a once-in-a-decade type of thing, and not another once-in-a-generation game-changer like the financial crisis.