FxWirePro: No reason for panic; welcome this over-complacent stock markets correction

Last two weeks’ selloffs in the stock markets around the world have spooked many investors to the core. While fear and panic take a grip, we at FxWirePro would like to urge our readers to not to panic but welcome this long-awaited correction.

While the selloffs began quietly last Monday, it gathered pace since Friday. Over the past two weeks, the U.S. benchmark stock index, S&P500 has declined 288 points or little more than 10 percent. It is currently trading at 2589. If you are still feeling spooked by the above numbers and the intensity, you need to take account the fact that there has been no meaningful correction even of 2-3 percent since 2016.

If you consider VIX, which is the CBOE volatility index and measures implied volatility through options market has been hovering below 20 since 2012, except for few occasions. VIX’s last peak was 24.5 and that is back in 2015. While a rising VIX indicates the level of fear in the market, a low value indicates complacency. Last year, it dropped below 10 in July and was hovering around that level through the whole year, which indicates the extreme level of complacency in the market.

Regular followers of FxWirePro know that we have been warning of this moment for quite some time now. Even one of our calls, ‘Short Eurostoxx50’ was open since before this selloff got triggered.

We have also been warning that rising yields would damage stocks going forward, however, we would still like to make the case that there is no reason for panic. The rates are not only much lower compared to the past, the majority of the central banks have not withdrawn from the stimulus yet.

We would once again urge our readers to welcome this overdue correction, which would make the market healthier. Nevertheless, we are maintaining watchful vigilance to assess whether this correction is turning into a reversal, which doesn’t seem to be the case at the moment.