Periods of low volatility in the stock market are always followed by periods of high volatility. Always.
It's as certain as spring following winter.
Of course, when you're suffering through temperatures that would
make an Eskimo shiver, it's hard to remember spring is on its way. And
when stocks are a one-way bet, when the market moves higher day after
day in unending bullishness, it's hard to imagine it moving in the other
But it always does. You can bet on it.
By the look of the Volatility Index (VIX), the market may be about to change temperature...
The blue lines on the chart are the Bollinger Bands. They indicate
the range of volatility on a chart. When the Bollinger Bands squeeze
closer together, as they're doing right now, it indicates a period of
contracting volatility. When they expand, as they did back in May, it
indicates a period of high volatility. One always follows the other.
The bottom graph charts the width of the Bollinger Bands. The width
is now as narrow as it was last April – just before the "flash crash"
and the start of a 20% correction in the S&P 500. There are many
other similarities between today's market environment and that of last
April. Investor sentiment is wildly bullish. And there are multiple
Now is definitely not the time to get complacent. Keep an eye on
the VIX. When the Bollinger Bands start to expand, we'll know the long
awaited correction has finally arrived. Long-term investors should head
for the sidelines. Short-term traders can speculate with short sales and
Best regards and good trading,