By Lawrence G. McMillan
The current year started off in a very similar manner to 2008, with the market dropping sharply through the Martin Luther King holiday. The year 2008 surely conjures up some unpleasant memories for most investors and traders (unless you happened to be short at the time – or long volatility calls, as this newsletter was). In this article, we’ll look at similarities in price action as well as the Volatility Index ($VIX) between 2008 and 2016.
No two markets are ever exactly alike, but the way that 2008 unfolded could be instructive for this year – especially if the similarities persist. I think it is possible that at least the next few months of 2016 could unfold in a manner very similar to that of 2008.
Many traders – especially those relying on traditional metrics – have been somewhat blindsided by the market's sharp decline this year. But there is precedence for this, and there were certainly warnings (more about that in a minute). But the real question is, will the market rebound from here, as it did from a bad January of 2015, or is there a more severe outcome ahead, as occurred after a very similarly bad January of 2008?
Read the full feature article (published 2/5/16) by subscribing to The Option Strategist Newsletter.
© 2023 The Option Strategist | McMillan Analysis Corporation