If there’s one thing we know about stocks and volatility, it’s this: when stocks are rising, investors become driven by greed and forget all sense of fear, and in that fearlessness, volatility falls to the wayside. When stocks are falling, on the other hand, that fear comes back: and the more stocks fall, the higher the volatility becomes.
The chart offers a historical look at the volatility of the S&P 500 when the index has traded above or below its 10-day, 20-day, 50-day, 100-day, and 200-day moving averages. When the index has traded above its moving averages (blue bars), its volatility tends to be around 15%, about as low as volatility ever gets. But when the index has traded below its moving averages (orange bars), its volatility tends to rise significantly: ranging from about 23% to
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With all this volatility, you may want to write that useful old adage down.
These spreads have widened, foreshadowing volatile days ahead.
When bond volatility is this hot, compared to stocks volatility, it’s a warning sign.