Saturday, 31 January 2015


When we look at these two intra-day DJIA charts from a distance, we see similar days : 8 subdrive range day on a Friday - last trading days of May 2014 and January 2015. On both days the range was bent close to the end of the session in the opposite direction to the initial impulse off open. When we look closer, we see the differences in volatility on these charts :
  • In May, most subdrives were smaller than 30 points, all day’s range was 70 points
  • Waiting for retracements over 10 points would get you nowhere
  • Yesterday, the market travelled 70 points in just ten minutes, day's range 260 points
  • Trading retracements lower than 30 points was not safe using conservative small stop

 The difference in the CBOE Volatility Index ($VIX) was 15 in May versus 21 yesterday. I am sure that VIX is measuring something, but is it of value for traders who live in the world or real price movement? VIX reached 30 points in mid October 2014, which was a peak not seen since 2011’s correction. There were two or three days of 340 points between open and close in October, but also ECB Thursday on January 22 was 360 point wide, January 6 - 320 points, January 13 - 420 points and the Dow’s range reached 300 points more than once in January beside that.VIX is not reflecting real price volatility. Sure, the market was moving last October, while it’s been sideways in January, but is VIX a volatility index or trendiness index?
I don’t believe in inflexible trading systems : based on points. You could attack reactions of 10 points with 10 point stop loss in November, but don’t try it in December. You may have taken profits of 20 points in November, but in January 20 point TP was a tactical mistake. How do I measure volatility myself? I count the points, therefore I don’t lose my sense of proportion. 
Euro and oil price declines, strength of USD and a blitz CHF move, more and more cracks in current global trade systems all contribute to higher volatility in stocks. While the ‘great recession’ that started in 2008 is gathering speed instead of coming to an end, we still cannot say when the Bull will end. The market is climbing the same wall of fear and worry year by year: fear of war, QE, ZIRP, debt, negative interest rates, stocks overvaluation, dollar collapse & so on. Is current volatility predicting a big bear market ahead? I think not, but time will tell.