Wall Street's FOMO Rally Continues to Heat Up: How Four Days of Gains Surpass Three Months of Volatility?

After the market close on August 4, Wall Street witnessed a significant acceleration that is hard to ignore. The S&P 500 index rose by a cumulative 5.8% over the four trading days leading up to that date. According to Reuters, the options market also showed bullish readings not seen in at least four years.

An increase itself does not equate to FOMO. What truly distinguishes this rally is how quickly prices are moving upward and how the options market is pricing both upside and downside risks simultaneously. On August 4, closing data from FRED also indicated that the stock market continued to rise, with the volatility index VIX, which measures expected volatility, also climbing. Optimism has not suppressed volatility.

Why Four Days Seem Longer Than Three Months

According to daily closing data from the S&P Dow Jones indices recorded by the Federal Reserve Bank of St. Louis (FRED), the upward movement over these four days has slightly exceeded the point difference between the highest and lowest closes over the previous three months within the same closing metrics.

Placing the two periods side by side is not to equate the four-day gains with the three-month high-low range. The former indicates direction, while the latter indicates range. They are placed on the same scale to highlight a change in trading rhythm, where the price fluctuations formed over months have been surpassed by the unidirectional movement of four trading days.

The price path itself cannot prove the psychology of each participant. What it indicates is that the continuous upward closes over four trading days have rapidly elevated the entry prices for subsequent participants. Reuters summarized the phenomenon of traders chasing this rally as FOMO. The speed depicted in the chart is part of what allows this assertion to be tested against the price series.

How Rare Is This in the Last Decade?

By rolling calculations of the daily closing data of the S&P 500 recorded by FRED over the last decade, there are 2,504 four-trading-day windows. The current increase of 5.7458% falls within the 99.32 percentile, landing in the sparse area at the far right of the chart.

According to FRED data, including this round, only 18 windows have had a four-day increase that is not lower than this level. Such a four-day amplitude is uncommon.

How Bullishness and Hedging Appear Simultaneously in Options

According to closing data from FRED on the S&P Dow Jones indices and the Chicago Board Options Exchange (Cboe), the S&P 500 rose by 1.79%, while the VIX closed up by 4.04%. The two price movements in the same direction at least indicate that at the end of the trading day, the market did not fully lower the pricing for future volatility.

According to Reuters, the bullish skew in short-term options has reached a two-year high. Data from options data firm Trade Alert indicates that the average daily S&P 500 call/put ratio over a month is 0.9, placing it in the most bullish range seen in at least four years.