The JPMorgan Mid-Day Note That Might Have Sent The Market Falling

Did a mid-day analyst note help send technology stocks tumbling during Thursday’s market session? Numerous sources are suggesting JPMorgan analyst Marko Kolanovic’s note that suggested potential risks ahead in the market as a reason behind the sell-off.

“It has been a quiet summer so far. In fact, over the past two weeks the VIX closed below 10 every day — marking a period of the lowest volatility in the history of option trading (since 1983). Equity markets are supported by positive fundamental developments in the US and abroad, but are facing two near-term known risks: extremely low volatility and prospects of central banks’ balance sheet reduction,” Kolanovic wrote.

A Closer Look At The Price Action (Between 11:30 A.M. And 1:40 P.M.)

• Amazon.com, Inc. AMZN: -3.8 percent
• Tesla Inc TSLA: -5.7 percent
• Facebook Inc FB: -3.4 percent
• Netflix, Inc. NFLX: -3.8 percent
• Alphabet Inc GOOGL: -3.1 percent

Is The Movement Justified?

The two notable highlights were Kolanovic mentioning the extremely low volatility and monetary accommodation. Specifically, he mentioned how the low volatility is a major problem due to the strategies traders are using to increase leverage when volatility declines.

According to Kolanovic, many of the strategies currently being used are similar to the features with dynamic “portfolio insurance” of 1987. Ultimately, these strategies rely on market weakness to cut losses, and as volatility get lower this creates a larger “stop loss order.”

“The fact that we had many volatility cycles since 1983, and are now at all-time lows in volatility, indicates that we may be very close to the turning point,” he said.

However, numerous other analysts have been discussing the low volatility for quite some time. Thus, this is not new information and this sentiment should not come as a surprise.

If this note is what is moving the technology sector, investors should ask the question: What new information came out today that triggers such a large sell-off?