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Thursday, June 16, 2005

Low Market Volatility

I have watched VIX for some days and I think it's time to give some attention to it. The Volatility Index (VIX) is currently 11.23. As you can see from the chart below, it has not been so low for some time. Low volatility usually predicts that a correction is coming in the nearer future. Therefore I wouldn't buy myself into the market too agressively right now.

Another warning sign related to volatility is the Bull/Bear ratio, which is: 52.7% Bulls and 20.4% Bears. Too many bullish analysts out there.

Chart of Volatility Index:
Chart: Volatility Index (VIX)
Chart courtesy of Prophet.Net.

There was a story about volatility in The Agile Trader today.

Pre-market Update: Even More On Volatility
The Agile Trader
June 16, 2005
20-day Historical Volatility has declined to 6.32, the lowest level since July 2, 1996.

As you can see, the last time we had volatility this contracted the short-term prognosis was miserable with the SPX dropping from about 676 to about 610 (during which time the VIX rose from about 15 to 28).
Read further:
The Agile Trader: Pre-market Update: Even More On Volatility (paid subscription required)

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