Indiscriminate dip-buying leads to unprecedented fragility and risks of a crash so powerful not even the Fed will be able to reverse it.
Since 1940, the only times the S&P 500 has had realized volatility well above 26 for a full year have been around the 1987 crash, the GFC, and the coronavirus crisis." This means that, all else equal, while stocks may be levitating ever higher on ever lower volumes and ever shrinking breadth, the options market is preparing for a crash similar to those observed on Black Monday, the Global Financial Crisis and the Covid Crash, which wiped out a third of market cap in days.
The S&P has now gone 200 trading days (it was 196 as of Monday) without a 5% pullback, making this the 5th longest streak in 50yrs. Notably, in the post-GFC era, the two previous such streaks both ended in the "large fragility events" of the Aug 2015 yuan devaluation and the Feb 2018 Volmageddon.
Also the index is on track to a near-record number of all-time highs in 2021.
Momentum chasing and depressed volatility are two of the key drivers of today’s fragile markets.
While implied vol may be a somewhat elevated, realized vol is near record lows while momentum chasing... well, just take one look at what happens to any meme stock du jour.
And since the Fed has now staked its entire reputation on not allowing what was once...

Omg