The S&P 500 Index recorded its first monthly price decline since March 2017, ending February 2018 with a loss of 3.9%. On a total-return basis, the S&P 500’s 15-month streak of gains came to a close.
USA Today wrote last week,
FIGURE 1: S&P 500 MONTHLY CHART (2016–2018)
TABLE 1: S&P 500 % MONTHLY RETURNS
Perhaps the biggest market story of February was the return of volatility, as USA Today points out. After a lengthy period of relative calm, the CBOE Volatility Index (VIX) spiked to just over 50 on February 6, 2018. It has remained elevated compared to levels seen in 2017, staying in the 18–22 range for the past two weeks.
FIGURE 2: CBOE VOLATILITY INDEX
At the beginning of this week, Asbury Research noted four factors that might represent positives for the S&P 500’s intermediate expectations:
One of those factors, the CBOE Put/Call Ratio, can act as a contrarian indicator. When the ratio reaches extremes of “bearishness,” according to Asbury Research, it “has previously coincided with most of the minor bottoms in the S&P 500 during the past year.” In further support of this premise, U.S. stocks have reached a significant oversold position as measured by the Relative Strength Index (Stochastic RSI) for the first time since early 2016.
FIGURE 3: CBOE PUT/CALL RATIO—5-DAY MOVING AVERAGE (INVERSE SCALE)
FIGURE 4: RELATIVE STRENGTH INDEX (STOCHASTIC) FOR S&P 500