The New Volatility

I was at the CSTA (Canadian Society of Technical Analysts) annual event at Toronto.
It was a two day event where many speakers talked about volatility.
‘The New Normal’ was the theme of the conference. Richard Rhodes, award winning newsletter writer and now asset manager, talked about VIX at and above 45 levels. He illustrated how this was infrequent event, which had happened 120 times over the last 20 year history of VIX. There was a monthly Key Reversal on VIX. He emphasized that monthly KR was a strong signal that worked. He overlaid his VIX case with Intermarket sector rotation, explaining which sector he would over allocate and vice versa. He also showed the historical workability of S&P500 with such spikes in VIX.
Ralph Acampora, founding member of MTA illustrated VIX with an overlay of historical news and talked about markets as a discounting mechanism. He also illustrated the similarities between sideways action on 1964-82 and the ongoing sideways action from 1998-2011. He also talked about low volume markets and choppy price action and how the current volatile swings could be a consolidation stage that could lead to further upside. Benner cycle low of 2011 confirms Ralph’s view. I have illustrated the two sideways actions.
David Hickson, an expert on Hurst Cycles illustrated the Hurst complex on the VIX cycles. His cycle perspective suggested a rising volatility well into May 2013. Hurst nested cycles were able to identify 2008, 2002, 1998, 1994 and 1990 spikes.
VIX interpretation is an essential part of a technician’s tool box today not only because it’s a sentiment indicator but also because VIX looks at the broad S&P500. The Jiseki cycles on VIX on an intermediate multi week cycle turned positive on May 2011 and VIX is still among the worst 5% quarterly performers among a global composite asset performance. This means that there could be continued rise in volatility till the Jiseki cycles turn down, whether it breaks or retests 45 however remains to be seen./em>
This article was written for ATMA.