Suitably Flip

Volatiler and Volatiler

Seems today's leery eyebrow-raise was justified.  The equity markets not only maintained their recently elevated volatility, but amped it up.  Friday's session saw another big triple-digit move in the Dow (unfortunately, to the downside).  The index was lower pretty much all day, but for the 4th day in a row, the final hour of trading saw a massive move, leaving all major indices lower by more than 2%.

Yesterday, I looked at a measure of Dow volatility (specifically, the trailing 10-day average absolute value of the index's point change) and found it climbing to levels not seen since October of 2002.  A chart of that volatility (updated for today's ugliness) is below.

Meh... the real scale of the ugliness is a little hard to discern, all squished up at the end there.  Here's the same measurement, plotted over just the last month.

See what I mean?

October 2002 is noteworthy in that it marked a significant turning point for U.S. equity investors.  The post-bubble downturn had finally run its course and the market began to mount what would turn into a 5-year bull market run.

As volatility has a tendency to increase when market trends are reversing, it stands to reason that the trough of 2002 would see a spike.  With Friday's turbulence pushing average volatility further above anything since late 2002, one wonders (well, I wonder, anyway) whether another change in prevailing market direction is being signaled.

A more traditional gauge of market volatility, the CBOE Volatility Index (the so-called "Fear Index") has also popped up recently, but at 25, still has a ways to go before nearing its 2002 peak levels above 40.

For what it's worth, judging by macroeconomic fundamentals and corporate earnings, I view stocks to be by and large attractively valued and likely to continue upward once we get through this spastic period.  And for all the market's vim and vigor of late, it could just be convulsing its way through a more convincing correction than we've seen lately, before resuming an upward trajectory.

On the other hand, if credit and/or housing concerns continue to dog the market like they've so enjoyed doing lately (and especially if people keep saying scary things like this), the mounting market turmoil of the past few weeks may prove prescient after all.

Previously:
Uncommon Volatility

Comments

Volatiler and Volatiler

Seems today's leery eyebrow-raise was justified.  The equity markets not only maintained their recently elevated volatility, but amped it up.  Friday's session saw another big triple-digit move in the Dow (unfortunately, to the downside).  The index was lower pretty much all day, but for the 4th day in a row, the final hour of trading saw a massive move, leaving all major indices lower by more than 2%.

Yesterday, I looked at a measure of Dow volatility (specifically, the trailing 10-day average absolute value of the index's point change) and found it climbing to levels not seen since October of 2002.  A chart of that volatility (updated for today's ugliness) is below.

Meh... the real scale of the ugliness is a little hard to discern, all squished up at the end there.  Here's the same measurement, plotted over just the last month.

See what I mean?

October 2002 is noteworthy in that it marked a significant turning point for U.S. equity investors.  The post-bubble downturn had finally run its course and the market began to mount what would turn into a 5-year bull market run.

As volatility has a tendency to increase when market trends are reversing, it stands to reason that the trough of 2002 would see a spike.  With Friday's turbulence pushing average volatility further above anything since late 2002, one wonders (well, I wonder, anyway) whether another change in prevailing market direction is being signaled.

A more traditional gauge of market volatility, the CBOE Volatility Index (the so-called "Fear Index") has also popped up recently, but at 25, still has a ways to go before nearing its 2002 peak levels above 40.

For what it's worth, judging by macroeconomic fundamentals and corporate earnings, I view stocks to be by and large attractively valued and likely to continue upward once we get through this spastic period.  And for all the market's vim and vigor of late, it could just be convulsing its way through a more convincing correction than we've seen lately, before resuming an upward trajectory.

On the other hand, if credit and/or housing concerns continue to dog the market like they've so enjoyed doing lately (and especially if people keep saying scary things like this), the mounting market turmoil of the past few weeks may prove prescient after all.

Previously:
Uncommon Volatility