Why Stock Market Investors Need to Fasten Their Seatbelts
“Because financial markets are a fractal, present conditions never maintain”
by Bob Stokes
Updated: August 18, 2020
Elliott Wave International's analysts have long noted that periods of low stock market volatility are almost always followed by periods of high volatility.
Granted, periods of low volatility can stretch for a while, yet a change occurs sooner or later -- and that shift is often dramatic.
Here's a case in point from the Elliott Wave Theorist which published on Oct. 23, 2017:
Persistent new highs in stock prices week after week and recently day after day have led to a substantial reduction in the volatility of stock prices, to the point that the CBOE Volatility Index has just reached an all-time low.
The VIX futures contract is widely characterized as a bet on the future, that is, as a gauge of expected volatility. But futures contracts always reflect the present, never the future. And because financial markets are a fractal, present conditions never maintain.
As you may know, a fractal is an object that is similarly shaped at different scales.
At the time the chart published, Large Speculators were short a record number of VIX futures contracts.
Yet, it wasn't long before the inevitable changed unfolded.
Stock market volatility took a big jump in late January and early February of 2018, with the DJIA surrendering 10% in less than two weeks.
And 2018 also brought other periods of eyebrow raising volatility.
On Dec. 7, 2018, Bloomberg reported that the S&P 500 had 1% daily trading swings 56 times up to that point in 2018.
What does that have to do with the present?
Well, our August 14 U.S. Short Term Update notes:
With the exception of five days in early June, the VIX has been declining since March 18, when prices spiked to a high at 85.47. This five-month decline culminated with a streak of 7 consecutive lower closes through August 10... Currently, Large Speculators are net short nearly a third of all open interest in VIX futures.
Of course, it's possible that the VIX slips to even lower lows before a jump in volatility unfolds.
Yet, you may want to get all of the insights that the U.S. Short Term Update is sharing with subscribers so you can prepare for what our analysts expect next.
Take advantage of our 30-day, risk-free trial -- and then, you may want to fasten your seatbelt.
Elliott Waves: What You Get Can Be “Highly Rewarding”
"When an Elliott wave is complete, it brings striking clarity to the market's ... likely future direction. Such junctures offer complete independence from the herd, and those times tend to be highly rewarding."
-- Robert Prechter, The Socionomic Theory of Finance (2017)
Imagine knowing the market's "likely future direction" before the news, or with no "news" at all. What an invaluable insight, with the right risk management!
In our more than 40 years in the business, we are yet to see a forecasting method that surpasses the usefulness of the Elliott wave model.
Try it for yourself, risk-free for 30 days -- and see if you agree. Here's how:
Want to predict the next big thing in fashion, film or pop music? What about developments in the economy, politics and societal health? Whether you’re new to socionomics or just want to brush up on the basics, you’ll be understanding and anticipating social trends in no time as you watch a child, young adult and expert apply socionomic theory in this engaging video.
"It's important to … look at the bigger picture. This stock is still on course for much higher prices." That was our forecast for Chipotle, in March 2020. Now see what happened in the months that followed.
Could the Dow Industrials hit 40,000 in 2021? At least one analyst says "yes." Bullish sentiment "remains as strong as ever." Let's delve into the details as you take look at this chart.