After years of essentially low to no volatility, traders finally get what they have been wishing for and that is a tradable market! In 2017 the markets witnessed the longest stretch of low vol in recent memory. In fact the VIX (see chart below) which is the ticker symbol for the Chicago Board Options Exchange volatility index traded in the 10 zone for most of 2017. The 10 level on the VIX (chart) is beyond abnormally low especially lasting for the better part of a year. Fast forward to today and the VIX is hovering around 20 after spiking to over 50 over the past two weeks. We haven’t seen the VIX (chart) at the 50 level in years. Call it long overdue, call it the market needed to correct, call it higher interest rates, call it what you want but finally we seemingly have more of a normal market environment. Not to say it wasn’t gut wrenching watching 1000 point Dow Jones Industrial Average (chart) intra-day swings over the past couple of weeks compared to the slow melt-up investors have enjoyed for years. Traders on the other hand have underperformed the markets during the melt-up because there simply was not enough or no volatility to be able to trade.
Stocks have indeed bounced sharply from the early February market correction. The Dow Jones Industrial Average (chart) closed the day up 307 points, the tech focused Nasdaq Composite (chart) closed up on the day 113 points, the S&P 500 (chart) closed up 32.5 points and the small-cap Russell 2000 (chart) finished the trading session up 15 points. Going forward I am certainly going to respect the technical make up of the aforementioned indexes and select stocks. Moving averages such as the 20-day, 50-day and 200-day tend to provide reliable support and resistance marks and now that we are out of the no vol environment, these moving averages tend to be more accurate and can be used to determined entries and exits in positions you hold and or trade. As I write this blog the key indexes have now rebounded to their 50-day moving averages so we will see if this technical indicator will act as resistance or if the markets can hold, breakthrough and proceed higher. Of course there is much more to consider when entering or exiting any position or strategy but when volatility comes back into the markets, most professional traders key in on the moving averages. Good luck to all 🙂