Volatility has expanded recently with an increase in the average true range for daily, hourly, 5 minute, and 1 minute timeframes in the stock index futures. Does anybody think this represents the beginning of a new phase of market development? That is from 1998 - 2000 bull phase with good volatility. 2000- 2002 Bear market with big volatility. 2003 - present reduced volatility with a bull market. Is this a change at present or are we just putting in another shortterm bottom which has over the last few years been associated with a brief (2 - 3 week) increase in ranges and volatility? Thoughts anyone?
I use volatility all the time in my trading. An example would be GS. Thursday and Friday, the pivot range was .02 wide (the lowest of the past 30 days). And we all saw the move that took place on Friday in the brokers. Volatility mean reversion is alive and well.
Agreed. But specifically there has been a CHANGE since week of 4/17 with regard to market moves and rotation into defensive plays. Metals complex booming, interest rates, blah, blah, blah. It appears vix (cboe index of option volatility) may have bottomed. If so we just topped but we also have incrementally climbed higher since 03' as illustrated here:
I think you're overthinking it. It's exceedingly hard to profit from macro observations such as that. Just focus on single issues.
But I would just second that the 2-10 note/bond spread bottomed on Feb 23 at a -16 bp spread, after having fallen consistently for ~26 months. Bottom in volatility and steepening yield curve are both traditionally bearish signs. Perhaps both of these have given us an early warning to a turning point. After all, markets move before the underlying reasons become generally recognized. (Also read that the stratospheric markets in Middle East have already corrected sharply - I still need to look into that ...)
hey duard - here's my take on longer term volatility trends (see the attached chart) - currently i don't see a turn up at all, it may take a while longer - all the best. (the chart is monthly VIX)