Is Increased Volatility a Sign of a Bear Market?

myminitrading · Nov 13, 2007

When financials are strong, everyone says, this is a sign of a healthy market, now that they are in a bear market, you might want to consider the overall market may follow.

RIMM, AAPL,GOOG can't support the entire market. This weekly ES chart shows a trend line break. technically we are still in an up trend until 1350.

stock_trad3r · Nov 13, 2007

Quote from ASusilovic:

So far this year the S&P 500 has had thirteen days where the index was up or down 2% in a single day (nine down and four up). This marks a large increase over prior years. In 2006 there were only two days where the index moved 2% in a single day (both up), while in 2005 and 2004 there were no days with a move of 2%. There are some who argue that the increase in volatility is a sign of a market top, implying that we may be entering a bear market. In the chart below, we illustrate the total number of days where the S&P 500 moved 2% by year. We also shaded years in which there was a bear market in gray (We defined a bear market as a 20% decline on a closing basis in the S&P 500).

In the bear markets of 1987 and 2000-2002, there was a large increase in the number of 2% days. However, for every bear market where the market showed increased volatility, there were also years where the S&P 500 saw a bear market and volatility did not show a meaningful increase (1956-1957 and 1966). Furthermore, there were also three years in the 1990s (1997-1999) where the S&P 500 had more 2% days than it did this year, and the market did not go into a bear market. So while the increased volatility can be stressful for the individual, it is not necessarily a harbinger of a bear market.

http://bespokeinvest.typepad.com/bespoke/2007/11/is-increased-vo.html
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Is Increased Volatility a Sign of a Bear Market?

myminitrading

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stock_trad3r