As stocks have pushed to new record highs in recent weeks, and VIX has dropped accordingly, the cost of protecting desperate asset managers from a far bigger collapse in prices has been soaring. We first noted the record high price of SKEW - a measure of market fear of a big drop in prices - a month ago [3], but for the first time in history, prices have remained elevated for a considerable period. As Bloomberg reports, the SKEW "is flashing a big warning signal for equity markets right now,” Kevin Cook, a senior stock strategist at
Zacks Investment Research Inc. in Chicago, wrote, adding that, "big players are quietly and eagerly buying up put protection while they hang onto their stocks." This institutional nervousness is occurring as retail dives and AAII Bulls surge back above 60% of investors.
This is a record high and record long period for SKEW to be elevated...
[4]
In the past four weeks, the SKEW has exceeded 140 three times: on June 20, July 2 and July 3. Only four other earlier readings, in June 1990, October 1998, March 2006 and December 2013, surpassed this threshold since calculations started in 1990. The chart shows all but the earliest occurrence, which happened four weeks before the S&P 500 peaked for the year.
Which seems to have been triggered at the FOMC meeting (when Fed confirmed QE will end in Oct)
[5]
Source: Bloomberg
