22.05.2023
Caution warranted
The Qi Vol Indicator has risen sharply and now stands at 18.31.
Historically when the one month change in our Vol Indicator is greater than 20, markets have been vulnerable to a volatility event and "risk off" move.
The chart below shows our Vol Indicator versus VIX. There have been some false signals but there are numerous occasions when a spike in the Qi Vol Indicator has acted as an early warning for a big volatility event - "Volmageddon", the 2018 Powell 'policy error', Covid lockdowns etc
Historically when the one month change in our Vol Indicator is greater than 20, markets have been vulnerable to a volatility event and "risk off" move.
The chart below shows our Vol Indicator versus VIX. There have been some false signals but there are numerous occasions when a spike in the Qi Vol Indicator has acted as an early warning for a big volatility event - "Volmageddon", the 2018 Powell 'policy error', Covid lockdowns etc
The full methodology for our Vol Indicator can be found here but in essence it's a way to measure when financial markets have become divorced from macro fundamentals.
Put another way, it is when price action is being driven by positioning, sentiment, geopolitics and other factors.
These drivers are inherently more volatile relative to macro variables. Hence sharp falls in macro explanatory power / sharp rises in these other conditions, can equate to uncertain trading conditions.
In investment terms it means it's time to think about playing defence.
And right now our model is flashing an amber warning light. A move over 20 would see amber turn to red.
Put another way, it is when price action is being driven by positioning, sentiment, geopolitics and other factors.
These drivers are inherently more volatile relative to macro variables. Hence sharp falls in macro explanatory power / sharp rises in these other conditions, can equate to uncertain trading conditions.
In investment terms it means it's time to think about playing defence.
And right now our model is flashing an amber warning light. A move over 20 would see amber turn to red.
