While market volume is picking up, there seems to be a visible lack of volatility. Is it a calm before the storm or is it a sign that things are settling down and the rally is for real? Dan Deming, trader at Stutland Equities, and Jeffrey Saut, chief investment strategist at Raymond James, shared their investor insights.
“We’re seeing a decline in volatility because it was seen that more confidence is coming back to the market,” Deming told CNBC.
“We’re seeing tremendous demand for stocks and other commodities—there’s so much money in fixed income, that any drop in the market right now" looks like a buying opportunity.
"We’re seeing huge demand in the market, so that’s keeping volatility under pressure,” Deming emphasized.
The CBOE Volatility Index, more commonly known as the VIX, is widely considered the best gauge of fear in the market.
- Track the Vix Here
Historical volatility, also known as realized volatility, is around 16 or 17, said Deming, which is slightly lower than the current volatility level at around 23.
“So that will probably put a little bit of pressure on the Vix moving into the fall,” he said. “As long as we’re seeing this market fall off 1 to 2 percent with huge demand underneath, money coming out of those money markets and coming into the market place, I think the volatility is going to be under pressure until the end of the year.”
Deming said ETNs such as the iPath S&P 500 VIX Short-Term Futures ETN and iPath S&P 500 VIX Mid-Term Futures ETN provide opportunity for investors to trade the volatility.
In the meantime, Saut said the “melt-up” in the Vix is driven by improving fundamentals and under-invested portfolio managers.
“These guys are starting to weight up into stocks and I think it will continue into the end of October,” he said.
Saut recommended sticking with big cap dividend players and recommended the following stocks.
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No immediate information was available for Deming or Saut.