What Weak Volatility Means For Markets
"What Weak Volatility Means For Markets"
in the news What Weak Volatility Means For Markets? What this all about..... See below.
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Sentiment Trader wonders what does the Weak Volatility mean or say about the market. The current low volatility is the lowest we have seen in the most period of extended time... study the chart below....this has many people talking!! Also our clients. This is quite interesting.
This is making some invesors nervous but from the peaks low volatility is actually GOOD for the stock market. From the most recent 52 week high, to the current low.
So what does this all mean, really?? That is what the bigger traders on wall st are talking about. Its not doubt that we are currently in a bull market, but is lack of a pullback in the stock market actually UNHEALTHY?
Well, that could be the case, and the over the last 20 day ranges, the average pullback in the stock market right now with historically LOW vix is half of 1% and that is the lowest we have seen since 1993.
The funny thing is, lots of retail traders out there are saying, that this just has to expand, and there for this sort of situation, including the low vix MUST BE BEARISH!?
But what you find time and time again, significant to market tops, is that the intraday trading ranges will EXPAND first as the market is still going up!!
So very narrow daily trading ranges, and very low drawn downs that we are seeing at the moment, is not actually characteristic of a MAJOR STOCK MARKET top!... Its more characteristic of a strong healthy up trends.
You saw this situation in the mid 1990's and then as you got into the last 1990's and towards the end of the bull market that is when you saw the ranges start to expand. The same thing occurred in 2004 and 2005 and then they did not really start to expand till 2007, just before the stock market CRASHED horrifically.
Most investors will be quick to say LOW volatility means a stock market crash is coming....That could be the case but as market analysts, but what we are trying to point out is that if there was a real big sell off coming, you might be seeing a warning sign by the market, and very big large daily trading ranges first.
So far as we watch the market each day, we do not see many of those signs showing up on our screens.
With the max drawdown we saw earlier this year of only 3% we could see something more like a 5% or 6% correction later in the year. That is very possible as the market is very overbought at these levels.
If history is anything to go by, you do not normally see big larger sell offs, and or crashes if you are in a solid uptrend and at the same time experience narrow daily ranges at the same time. For that to happen you would need to see larger volatile swings for weeks before that type of even was to occur.
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