The market usually gives this 'advance warning' before plunging

  • The S&P 500 posted an average of 67 trading days of high volatility, in which it rises or falls by 1 percent or more, before it tops out and drops at least 10 percent.
  • But the market is giving no signs of such turbulence, equity strategist Sam Stovall says.
  • Over the past 12 months, the S&P 500 has had just 11 days in which it rose or fell at least 1 percent.

Fear not. The market will likely give you a heads-up before a 10 percent pullback, equity strategist Sam Stovall says.

That heads-up typically comes in the form of rising volatility, CFRA Research's chief investment said in a note Monday.

Over the past 40 years, the S&P 500 posted an average of 67 trading days of high volatility, in which it rises or falls by 1 percent or more, before it tops out and drops at least 10 percent.

Stovall pointed out that the S&P 500 has had just 11 days in which it rose or fell at least 1 percent during the past 12 months.

"Investors have been both pleased and unnerved by the rising number of new highs that have been accompanied by an absence of volatility," Stovall said. "The market will likely continue to surprise investors in 2017 in a positive way, and may even be kind enough to warn of an impending correction through a ramp-up in daily volatility."

Pedestrians walk on Wall Street near the New York Stock Exchange (NYSE) in New York.
Getty Images
Pedestrians walk on Wall Street near the New York Stock Exchange (NYSE) in New York.

Equities have risen to record highs this year, with the S&P 500 advancing nearly 15 percent.

The CBOE volatility index has traded around historically low levels and has had five-straight weeks in which it closed below 10. The VIX measures the market's anticipated volatility over a 30-day period using a range of S&P 500 options.

Further signs of the quiet action in stocks were highlighted by analysts at LPL Financial. In a note Monday, they said the S&P 500 has gone 242 trading days without a 3 percent correction, the longest such streak in the index's history.

"I do think we are in the latter stages of this bull market," Todd Gordon, founder of TradingAnalysis.com, told CNBC on Monday. "We're at a 4.5 percent monthly high-to-low range. That's the quietest in history. We have never seen a tighter market and that just spells complacency. That makes me worried."

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

Videos

Trades to Watch

Trader Bios

About

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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more

Connect