Corrections don’t feel “natural, normal and healthy” when you are in them. Last Thursday, we noted that out four key tactical indicators were approaching an oversold level that would begin to warrant a more positive view, but could get more extreme – and they are. Even if you identify a period in time that is ripe for volatility and further correction, it still doesn’t feel “normal and healthy” when going through it. In addition to perceived fundamental factors, similar to the 02/18 correction, there seems to be structural factors at play creating a “whoosh.” As an example, the accelerating factor in the 02/18 correction was the unwind of volatility ETNs, such as the iPath S&P 500 VIX Short-term Futures ETN (VXX). In the current correction, the accelerating factor most commonly mentioned is the unwind in the “risk parity” trade. Frankly, we have no idea how to gauge the actual market impact for either, but one thing is for sure—as the market has marched higher, non-fundamental factors have helped make the market very volatile, very quickly.

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