We’ve talked about the record low volatility compression in US markets for quite some time. In March we talked about a coming volatility spike (which we got), but the French election, like any of the previous elections in the recent past (think Brexit, the US election, the Italy referendum) all have served as triggers to compress volatility even further independent of the election outcomes.

Volatility compression indeed remains the name of the game and for us a break higher in volatility remains the big ‘when’ not ‘if’. For now the upside market risk targets we discussed in The Final Wave remain in purview of a blow-off topping move, yet the panic compressions in volatility say something about these markets and the bull case seems squarely dependent on this trend continuing.

The month of April ended up with the lowest monthly closing reading of the $VXO ever. Ever is a long time:

The charts remain absolutely stunning on that front and I share them here as a means of documenting their historic levels, not only on volatility itself, but how the individual volatility components track several of the major indices.

The message if you look at volatility on an inverted basis: Utter panic.

Yet viewed in terms of price as a ratio to the underlying indices the message speaks to a panic compression, an unsustainable low level that demands directional relief to the upside:

Indeed the current low volatility readings are reminiscent of a period not too long ago: