A recent Business Insider chart of the day feature was particularly interesting. Called The stock market is asleep, it observed that the US market has been in a period of very low volatility:
Market technician Ryan Detrick noted that it’s been 8 weeks since we’ve seen a weekly move of at least 1% up or down in the S&P 500. That’s the longest such streak we’ve seen in 21 years.
The suggestion in the article is that the market will go on rising until the economy enters a recession, the implication being that a long period of low volatility is a sign of market health. In fact it is quite the opposite. A sleep-walking market is a reflection of complete disregard as to risk.
Markets enter such periods of complacency when there has been a long uptrend, with periods of very low volatility reflecting where the market has come from, not where it is going. Such periods are far more likely to be a sign of an impending trend reversal than of a continued uptrend. Continue reading “Volatility and Sleep-Walking Markets”