The markets got poleaxed yesterday.
It seems like the end of the world, but then again the S&P is only off all time highs by a whopping 1.6%.
But it sure feels a lot worse right?
Monday was a "volatility pivot." That means there was a significant expansion in volatility relative to the past month. We can visualize it like this:
It was a 2.5 standard deviation day to the downside. That's statistically significant.
Now keep in mind that for the past few months, any kind of move like this has been faded. The "buy the dip" trade has been super aggressive.
So do we bounce?
Well the odds seem to be in favor of this. Kora at paststat ran a study showing that if the S&P makes a 10 day low on a Monday, it's a bullish bet.
And DynamicHedge has some data back from November that a 2nd day bounce is a high probability trade.
As it stands right now, I'm expecting a bounce, but will be very interested in the characteristics of the bounce-- whether it's readily accepted or starts to fail as we head back to our January trading range.