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Increased Volatility Could Flip Switch On Complacency!

  • Written by Syndicated Publisher No Comments Comments
    July 11, 2014

    It’s no secret that volatility has been unusually low and benign. It can be seen in the volatility index VIX.

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    It’s also no secret that low volatility breeds investor complacency.

    What’s to worry about if the Dow moves only in fractional increments, may not manage new highs by more than a fraction before pulling back, but also doesn’t decline by more than a fraction before bouncing back to yet another fractional new high.

    What’s to worry about if the market is incapable of even 3% declines, let alone the 10% correction that is supposedly overdue.

    But is a return of normal volatility overdue?

    At this point, long periods of triple-digit moves by the Dow of 200, 300, 400 points a day in one direction or the other, sometimes several in a row, have been pretty much forgotten.

    Yet it was not that long ago. In one worrisome time last summer there was one period when there were 15 days out of 21 when the Dow closed up or down by triple-digits, the worst a one-day plunge of 353 points, and down 718 points over one four-day stretch. (Yet altogether there was not even a 10% correction overall).

    But what would a return of such volatility do to the current unusual degree of investor complacency?

    Would it even encourage short-sellers back into action? 

    And as we have been showing you, the market is short-term overbought and our short-termindicators have been on a sell signal for two weeks now. We have also been concerned about European markets as we showed you a couple of days ago, and they have collapsed further since.

    The Stock Traders Almanac points out that volatility tends to increase in the summer after the July 4 holiday.

    Will volatility return and flip the switch on complacency?

    To read my weekend newspaper column click here:  Jobs Report Not As Positive For Economy As Some Think

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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