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The Unexpected "Why" Behind This Stock Market Volatility

"Large Speculators often make their biggest bets near trend reversals."

by Bob Stokes
Updated: October 24, 2018

You're hearing a lot of explanations as to what's going on with the stock market. Here's one explanation you won't find in the mainstream.

The stock market's volatility from late July through early October was extraordinarily low. The S&P 500 had not closed more than 0.8% in either direction for 50 straight days, the longest such streak since 1968.

Our Oct. 8 U.S. Short Term Update shared these facts with subscribers, showed this chart, and said:

SpeculatingLowVlatility

Large Speculators are making their largest bet in nearly a year that market volatility will remain subdued. Last week, this cohort of speculators increased their net-short position in VIX futures to 140,444 contracts, the largest bet on a low VIX since November 2017.... Large Specs often make their biggest bets near trend reversals, catching them in wrong-way bets at the wrong time.

Large Specs are the "big boys" -- hedge funds and the like. Their propensity towards making "wrong-way bets at the wrong time" was again on display just two days later, on Oct. 10, when the DJIA closed more than 800 points lower. That was the index's worst day in eight months, and the worst whipping for technology shares in seven years. Moreover, the volatility continued the very next day, with the DJIA closing down another 545 points.

Of course, volatility implies moves in both directions. By Oct. 16, the DJIA closed up more than 500 points, only to surrender more than 300 points on Oct. 18. Then came other triple-digit declines on Oct. 22-23.

The bottom line is that low volatility is always followed by high volatility.

However, some investors hold the opinion that this jump in volatility is just a bump in the road. Here are some recent headlines:

  • Top Advisor: It's a Buying Opportunity--For Stocks and Bonds (Barron's, Oct. 11)
  • Massive pullback in tech stocks is a buying opportunity... (CNBC, Oct. 11)
  • Apple Stock Shows a Major Buying Opportunity (TheStreet, Oct. 19)

These headlines about "buying opportunity" might have it right. Then, again, you may want to read what our analysts have to say about stocks and bonds today.

After all, Elliott wave analysis is uniquely suited for volatile times, because it allows you to see both the short- and long-term market trends often in the same chart.

As you read our latest analysis and predictions, you will find an independent perspective that we believe will help keep you ahead of major financial turns.


Even If the Stock Market Gets Uglier … You Can Be "Sitting Pretty"

Market volatility is not the enemy -- IF you have the RIGHT team of market analysts on your side. The record clearly shows that EWI's analysts warned subscribers to expect a jump in volatility before that Oct. 10 plunge of more than 800 points in the DJIA. And, RIGHT NOW, our analysts are again providing important market insights to subscribers, which you can tap into 100% risk-free. Learn more by reading below …

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