Jason Goepfert wrote last Friday in a short piece in Sentiment Trader called:“What a Range!” about the tight trading range that the SP500 has been in for the last month. All the of the highs have been within 0.75% of each other, around 930, and all of the lows have been within 0.75% of each other around 880.
Today, before the market open, the SP500 is up 16 points to 935.
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The last time we saw this kind of four-week cluster was during the end of December 2006 through the first week of January 2007 (it’s not surprising that many of these occurrences happen around holidays when volatility is dampened).
Using the S&P 500 since the late 1920’s, we usually saw a quick move to the downside out of these consolidations – the next week was positive only 32% of the time. But after that, the returns turn considerably more positive.
That’s something we very often see with volatility contractions…the first move is usually a fakeout before a more sustained move in the other direction.
Volatility collapsed Friday afternoon as well.
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