Should We Expect Higher Volatility?
- Posted by JC Parets
- on November 12th, 2012
To some, higher volatility is a good thing. To others, it’s terrible. And to the rest, it’s just something we need to deal with and be able adjust for. To me, it appears as though the Volatility Index is stabilizing above a (now) flattening 200-day moving average. And this healthy consolidation comes after an almost 5-month downtrend was broken to the upside late last month.
Take a look at the Relative Strength Index. What stands out to me is the fact that the $VIX never got into oversold territory. Support in the RSI consistently came in well above the 30 reading, which tells me that the bulls are still in control and we need to be aware that further upside is likely.
The level that we’re watching closely is where the rally got going on Friday. If the $VIX rolls over here back below 17.75, then perhaps we may be able to point to lower prices coming. But I think based on what we’re seeing from RSI and the nice consolidation after the initial downtrend break in price, we have to be bullish $VIX here, at least for now.
So what does that mean for other assets? Well, I would be careful initiating new speculative longs in equities without tight risk management strategies also in place. Some of the more defensive areas like Bonds and US Dollars should benefit. And I think looking harder for non-correlated positions is probably a good idea. But mostly, this is just something that we should watch closely. We’re not hearing the $VIX being mentioned in the headlines these days. At least not anywhere near as much as we’ve been accustomed to over the past few years. So something tells me that we should get ready for some more $VIX chatter soon. We’ll see…
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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