While there are obviously "stories within the story," the general theme of equity markets in the United States has been "steady as she goes" since Donald Trump was elected President.

The SPY is up over 10% since November 8th, and the VIX has been hovering around 11 since the beginning of 2017.

The longevity of the trend, and one-dimensional nature of the of equity markets during this period, has been notable.

The big question going forward is when (not if) the market will correct, and to what degree.

There are some data points that suggest some investors/traders are starting to believe a correction could be on the horizon.

The Market Measures team recently looked back in history to analyze how often market corrections materialized after a surge in equity prices, and the depth of those corrections.

Looking at SPY data going back to 1994, the tastytrade study isolated cases where the market made highs, and then evaluated the following 6-month period to see how often a 5% or 10% correction materialized.

The results show that a 5% correction happens on average 30% of the time, while a 10% correction happens on average 15% of the time.

The team then filtered the results to include only data from 2012 to present, and found that over the last five years 5% corrections have occurred only 12% of the time, while 10% corrections have occurred only 2% of time.

Most experienced traders wouldn't likely push back on an assertion that pullbacks/corrections in the market over the last 5 years have been weaker/less frequent than the 18 years prior.

Every market participant will make their own assessment of the market landscape through the remainder of 2017 and beyond. However, recent signals in the market (VIX premium > 150%), and the lack of significant pullbacks over the last five years suggest that current market conditions could persist (i.e. an upward trending or sideways market).

If you want to learn more about how the VIX tends to behave once it reaches the lower end of its range, this previous blog post may also be of interest.

As always, we hope you'll reach out at support@tastytrade.com with any questions or comments.

Thanks for reading!


Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.