Monday, April 7, 2014

Risk-on/Risk-off declining


We have not heard much talk in the news about risk-on/ risk-off days. There is a reason. There have just been fewer of them as measured by large move up or down days. Attain Capital provided a review of the number of risk-on/risk-off days versus all other days for the last year. The numbers tell a story of calmness in markets. Volatility has been reaching low levels across most asset classes. 

Is this good or bad? Less big move days suggests there are fewer large swings in market opinion. There has been less surprise information in the market. It could be we have had less large swings in the underlying macroeconomic data that drive markets. It could mean everyone is agreeing on how markets should behave at this time. In all cases, this calmness is unlikely to last. I am not being contrary just for the sake of being different, but rather because markets are usually driven by differences of opinion and surprise and we should expect more.

This increase in big moves will be good for futures trading nd offer more opportunities for profit and for risk.

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