Does This Look Familiar?

I really do not like where this is going. Obviously I’m referring to equities, more specifically what I’m seeing on the daily volatility profile. Each additional day of whipsaw increases the probability of the rather unpleasant scenario I was proposing last week. One which would have us revert to the very same sideways chop fest we loved to hate so much most of this year, only to be briefly interrupted by a medium term correction in August.

The highlighted areas is what you should be paying attention to. For the uninitiated – what you are are looking at is an indicator showing us realized volatility within a simple Bollinger band. When the band starts squeezing and the signal is pushing sideways without resolving above the higher or below the lower band then you know that buyers and sellers are exchanging blows without either side able to turn the trend in its favor.

Those types of conditions usually do not sustain for very long. Except that they have – this year – and it’s one of the reasons that even professional traders have had a tough time this year. It is quite possible that this year’s August correction was just a brief interruption of what is basically a market in wait & see mode. Nobody wants to make a move until the FOMC and ECB is starting to show their hands. IMNSHO they already have – in that they’ve now resorted to jawboning their respective currencies into not appreciating excessively. Both Yellen and Draghi are masters at confusing the crowd with contradictory statements. This works only for so long and at some point this whole house of cards is going to come crashing down.

Speaking of which – in the original (much better) version of the series House Of Cards the protagonist Francis Urquhart once said: “Nothing lasts forever. Even the longest, the most glittering reign must come to an end someday.” Well, I for one can’t wait…

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Cheers,