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Market calm has eerie parallels to pre-swoon August

Stocks haven't done much in a while. Wednesday marked the eight-straight day that the S&P 500 had closed less than 1 percent above or below its prior closing price.

Ominously, the last time the market staged this long a period of quiescence was in early August — shortly before stocks took a gut-wrenching tumble.

Now, as then, "we are at a precarious position," Erin Gibbs of S&P Investment Advisory said Wednesday on CNBC's "Trading Nation."

"We're trading at fairly high valuation and earnings growth doesn't look that good, so any big shocks — disappointment from China, any movement from the Fed — could send us into those highly volatile markets once again," Gibbs said.

As the market has slipped into a period of calm, the amount of volatility expected over the next 30 days — as measured by the CBOE Volatility Index, or the VIX — has fallen dramatically.


In fact, on Monday, the VIX closed below 14 for the first time since Aug. 18. That's the day before the start of the August swoon.

Of course, it would be absurd to predict a market drop merely on the basis of a decline in volatility. As the past few years have shown, low-volatility periods can last for extremely long periods of time. In fact, the S&P failed to rise or fall 1 percent or more in 26-straight sessions stretching in late 2014.

Yet as recent history reminds us, it's also a mistake to think that just because stocks have done little lately, a big drop can't be just around the corner.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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