Volatility is back to normal as long as we remain in the bid mode. Managers continue to pile in with the fear of being too clever by reducing their holdings earlier in the year. This in itself does not guarantee a continued rally. With the Fed tomorrow, whiplash will reappear for a bit and then focus on a general direction.
The break of recent past was orderly and did not have the important liquidity risk event which will ultimately appear along the ever expanding liquid alternative (ETFs) birthing. Illiquid underlying wrapped products will cause a similar crash of more liquid alternatives as arbitrage balancing will perform its usual side step and let markets free fall to a profitable spread opportunity. Then ETF repudiation will cut in half existing products for those which better weathered the correction.
