Over the last couple of week’s, volatility has certainly picked up. As shown in the chart below, stocks have vacillated in a 1.5% trading range ever since the beginning of June. Chart through Thursday...
Despite the pickup in volatility, support for the market has remained firm. Importantly, this confirms the conversation I had with Kevin Massengill of Meraglim just recently discussing the impact of Algorithmic Trading and how they are simultaneously currently all “buying the dip.” As he notes, this is all “fine and dandy” until the robots all decide to start “selling rallies” instead.
But even with the recent pickup in volatility, volatility by its own measure remains extremely compressed and near its historical lows. While extremely low volatility is not itself an immediate issue, like margin debt, it is the “fuel” that when ignited “burns hot” during the reversion process...
Currently, as we head into the extended July 4th weekend, the bull market trend remains clearly intact. With the “accelerated advance” line holding firm on Thursday’s sell-off, but contained below the recent highs, there is little to suggest the advance that began in early 2016 has come to its final conclusion...
However, such a statement should NOT be construed as meaning it WON’T end as it more assuredly will. The only questions are simply when and how deep the subsequent reversion will be?
Volatility is creeping back. The trick will be keeping it contained.
In the meantime, this is a long holiday weekend. Happy Independence Day...
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