Extremely Rare Volatility Signal Says A Big S&P 500 Move May Be Coming

Sep. 06, 2016 2:23 PM ETIVV, SPY, VOO, VTI50 Comments
Chris Ciovacco profile picture
Chris Ciovacco
9.6K Followers

Summary

  • This indicator has never been lower dating back to 1982..
  • What happened in the stock market following the last rare reading of this magnitude?
  • Is there other hard evidence that aligns with this low volatility reading?.

Big Moves Often Follow

Regular viewers of CCM's weekly videos may be familiar with the expression "the longer a market (VTI) goes sideways, the bigger the move you tend to get after a breakout or breakdown", which aligns with the concept of periods of low volatility often being followed by big moves in asset prices (VOO).

Lowest Level Dating Back To 1982

Bollinger band width is one way to track relative volatility. When Bollinger band width readings hit extremely low levels, it tells us to be open to a big move. The S&P 500's (SPY) daily Bollinger Band width has never been lower than it is today, using data back to 1982, which means a big move could be coming soon in stocks.

The concepts behind Bollinger band width as described by StockCharts.com:

Bollinger BandWidth is best known for identifying The Squeeze. This occurs when volatility falls to a very low level, as evidenced by the narrowing bands. The upper and lower bands are based on the standard deviation, which is a measure of volatility. The bands narrow as price flattens or moves within a relatively narrow range. The theory is that periods of low volatility are followed by periods of high volatility. Relatively narrow BandWidth (a.k.a. the Squeeze) can foreshadow a significant advance or decline. After a Squeeze, a price surge and subsequent band break signal the start of a new move. A new advance starts with a Squeeze and subsequent break above the upper band. A new decline starts with a Squeeze and subsequent break below the lower band.

Similar Band Width In 1995

The last time Bollinger band width was as low as it is today was 1995. When volatility returned, the S&P 500 (IVV) climbed 21%.

What To Look For In 2016

Since there is no

This article was written by

Chris Ciovacco profile picture
9.6K Followers
Chris Ciovacco is the founder and CEO of Ciovacco Capital Management (CCM), an independent money management firm serving individual investors nationwide. The thoroughly researched and backtested CCM Market Model answers these important questions: (1) How much should we allocate to risk assets?, (2) How much should we allocate to conservative assets?, (3) What are the most attractive risk assets?, and (4) What are the most attractive conservative assets? Chris is an expert in identifying the best ETFs from a wide variety of asset classes, including stocks, bonds, commodities, and precious metals. The CCM Market Model compares over 130 different ETFs to identify the most attractive risk-reward opportunities. Chris graduated summa cum laude from The Georgia Institute of Technology with a co-operative degree in Industrial and Systems Engineering. Prior to founding Ciovacco Capital Management in 1999, Mr. Ciovacco worked as a Financial Advisor for Morgan Stanley in Atlanta for five years earning a strong reputation for his independent research and high integrity. While at Georgia Tech, he gained valuable experience working as a co-op for IBM (1985-1990). During his time with Morgan Stanley, Chris received extensive training which included extended stays in NYC at the World Trade Center. His areas of expertise include technical analysis and market model development. CCM’s popular weekly technical analysis videos on YouTube have been viewed over 700,000 times. Chris’ years of experience and research led to the creation of the thoroughly backtested CCM Market Model, which serves as the foundation for the management of separate accounts for individuals and businesses. Copy and paste links into your browser: Market Model: http://www.ciovaccocapital.com/sys-tmpl/ccmmarketmodel/ More About CCM: http://www.ciovaccocapital.com/sys-tmpl/aboutus/ YouTube: http://www.youtube.com/user/CiovaccoCapital Twitter: https://twitter.com/CiovaccoCapital CCM Home Page: http://www.ciovaccocapital.com/sys-tmpl/hometwo/

Disclosure: I am/we are long S{Y. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (50)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.