MKM Partners Says To Expects The Vix Curve To Cycle Trough To Peak, Sees Elevated Spot Floor Between 15-17 Range

In a new report, MKM Partners analyst Jim Strugger discusses the market implications of the recent pickup in volatility. According to Strugger, traders should take a cautious approach to stocks regardless of whether or not a bear market has begun.

From a historical perspective, every major bear market and market pullback since 1990 has occurred within extended high-volatility periods in the S&P 500. MKM notes that the market entered one of these high-volatility periods in mid-2015.

The SPX averages a positive monthly return about 67 percent of the time and the VIX averages around 14. During the last extended period of volatility, from 2007 to 2013, the SPX only delivered positive monthly returns 53 percent of the time and the VIX averaged 24.

For now, MKM expects “the VIX futures curve to cycle from trough to peak with the elevated spot floor in the 15-17 range.”

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Strugger says that regardless of whether or not the bull market is dead, traders should be ready for a higher-risk environment. “Whether or not a bear market is underway remains inconclusive from a volatility perspective,” he notes.

So far this year the SPDR S&P 500 ETF Trust SPY is down 2.3 percent and the iPath S&P 500 VIX Short Term Futures TM ETF VXX is up 13.1 percent.

Disclosure: the author holds no position in the stocks mentioned.