A Note to Our Investors

Thoughts on Crashes, Corrections and Computer Volatility

Written October 23, 2018


The market is being asked to discount a lot at the moment.

  1. US Politics
  2. US/China trade politics
  3. US Interest Rate Policy
Allen Gillespie CFA Amazon Report

As a result, people worry that the end of the central bank quantitative easing bubble is causing an October crash.  While this is a possibility, we do not think that is the highest probability.

Let’s add some historical context to the current market conditions. Our analysis of stock market crashes show that they come in two flavors.

  1. The big bull markets that end with a bang (1929, 1987, Japan 1989, Nasdaq 2000).  These bulls are generally killed by interest rates north of 6% and crash until year to date gains (YTD) are less than zero (as people aggressively sell to protect gains).
  2. Bad Markets (1930-1932, 2008, 1973/74).  These markets never lift their head and are down all year and people just give up at the end.

Given that stock markets and interest rates were up until the fall – we would put the current market in the ‘Big Bull Markets That end With a Bang’ category but with a lessor magnitude.

The VIX index (CBOE Volatility Index) is now trading between 18-25.  Historically, the average is 20 with a standard deviation of above 6, so it seems we are back to normal markets. Because the VIX has been hovering in the mid to low teens since early 2016, People have forgotten what normal markets are like.

Why do I bring this up? Because, computers are programmed to identify events (and then look for those same events) and then repeat the action.  So technically, there is still higher risk through about the 29th of the month and the post election period in November. This risk stems from a few historic event patterns and the tendency of computerized trading to repeat actions.

Securities offered through FinTrust Brokerage Services, LLC (Member FINRA/ SIPC) and Investment Advisory Services offered through FinTrust Capital Advisors, LLC.  Insurance services offered through FinTrust Capital Benefit Group, LLC. Any views expressed in this message are those of the individual sender, except where the message states otherwise and the sender is authorized to state them to be the views of any such entity. Trade instructions may not be accepted via email.  This material does not constitute an offer to sell, solicitation of an offer to buy, recommendation to buy or representation as the suitability or appropriateness of any security, financial product or instrument, unless explicitly stated as such in the text of the email. Past performance is not necessarily indicative of future returns. Performance numbers have not necessarily been independently reviewed or audited and therefore we make no representation as to its accuracy. Any reference to the terms of any contracts should be treated as preliminary only and subject to our formal written confirmation. This information should not be construed as legal, regulatory, tax, or accounting advice. This message (and any attached materials) is for the sole use of the intended recipient(s) and may contain information that is privileged, confidential and exempt from disclosure under applicable law.  Any review, dissemination, distribution or duplication of this communication is strictly prohibited.  If you are not the intended recipient, please contact the sender immediately by reply e-mail and destroy all copies of the original message. This is an advertisement from FinTrust Capital Advisors. 

FinTrust Capital Advisors, LLC and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Related Posts

No results found.
You must be logged in to post a comment.