Thursday the S&P 500 managed to wake everyone up for their end of 2013 complacency with a 1.3% drop. Of course this year any sort of drop has been a buying opportunity and traders have been trained this year to have a Pavlovian reaction to sell offs. This reaction is to hit the buy button and push the market back on an upward track. The reaction was quicker than it has been most of this year and the rebound took just twenty four hours.
The other ‘reaction’ to market sell offs this year has been the non-reaction in the volatility markets. Despite the big drop in the stock market on Thursday, VIX managed to trade up to just over 14.00. By Friday’s close VIX was down slightly for the week. VVIX, which is another good measure of market fear closed Thursday just over 70.00 before settling the week under that historically low level.
I think some of the complacency can be attributed to what is on the horizon for the markets. Nothing is a good word to sum up what is on the horizon. Earnings season is just about over, the economic calendar is light, and congress does not have any catastrophic deadline looming in the new few weeks. The result is low VXST, VIX, VXV, VVIX, et al.