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Saturday, 30 July 2016 20:31

Swinging On the Star Above Market Volatility

After 11 consecutive trading days with less than a .9% change in the Dow S&P 500, the market set a new record for stability dating back more than 45 years. The VIX known as the “fear” index is now approaching the lowest levels since January 2007. Experts are referring to the period as the “dullest” trading period in history, citing that “literally nothing” is going on. The recent occurrences aroused the curiosity of those investors who live on the outside of the traditional circle who follow more closely rules governed by patterns.

Will It Be the Outside Force:

According to the old Newton law objects in motion tend to stay that way, while those at rest, much like the market lately do as well. Those objects which are at rest need an “outside force” to set them into motion. The question may well be the nature and impact of the coming event which will trigger an escape from this “dullest” of trading cycles in history. Predicting whether this force will be negative or positive may well be a windfall for investors if considering the length of time the market has been stable and the other possible school of physics which might present a more cumulative effect.

Will it Be Equal and Opposite:

Another school of thought for the pattern might evolve around the other of Newton’s laws which illustrate for every action there is an equal and opposite reaction. If the Volatility Index has been very close to zero for several consecutive days, does this mean it will swing violently to the other side? If the swing is reactionary in nature will that “trigger” back to balance out the equation be a decisive leap or a massive decline. If the first direction which breaks outside of that 1% motion upward or downward causes a momentum shift, there might be a significant ride involved.

Waking From the Nap:

The only thing which is constant in the world is change, and that may sound like a very tiring cliche’ but when looking at a picture of the intraday market volatility during the past five years, it would certainly apply. Nearing the 10 - 15 range for volatility did not even start to happen until late 2012, and there have been few jumps where the VIX spike came close to meeting the drop in S&P500 value. Obviously, with the value continuing to grow the intraday VIX would naturally decline due to the fact it takes larger volume shifts during a single trading day to affect the percentage of change.

The “Tail” on a Star:

With the drops in S&P 500 value creating a descending point of the graph similar to the tale of a star. The two lines on the chart have not met in over three years aside from a brief hit in August and September 2015. Pattern enthusiasts recognize the first quarter shift of the two lines toward each other as a possible signal of a larger shift. Before 2012 the VIX was hovering in the 30-40 range with the S&P500 hovering around 1200. With the S&P now ranging between 2000 and approaching 2200 the corresponding VIX for adjustment in volume would be hanging in the vicinity of the low 20’s.


The “Tale” told from Swinging on a Star:

The difference in 8 points already being factored in on the flat side, combined with the momentum of an “outside negative force” could be significant. Bulls in the market could easily be crushed trying to swing from the “star” represented by the tale of the decline of S&P while it rebounds. With the already “coiled” VIX storing 8 points just to balance out the cycle momentum might easily make “Star Swinging” Bulls an endangered species.

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