Study: High Volatility Is Bullish For The Stock Market -

Study: High Volatility Is Bullish For The Stock Market

Mar 29, 2018Jeremy ParkinsonFinance0

The U.S. stock market’s recent volatility has been very high. We demonstrated in this study that high volatility is a short-term bearish sign but a medium-term bullish sign for the stock market. Here’s another way of looking at it.

The S&P experienced 4 consecutive days of >1.5% movements (CLOSE vs. CLOSE $) from March 22 – 27, 2018. Some traders think that such high volatility is “bear market behavior”. I disagree.

This is a very common signal. There is nothing rare about 4 consecutive days of >1.5% movements.

This is a medium-term bullish sign than a bearish sign outside of recessions. There is no recession right now.

Here are the historical cases when the S&P experienced 4 consecutive days of >1.5% movements.

June 29, 2016

August 11, 2011

There were a bunch of cases in 2008. But that’s because the economy was in a recession.

There were a bunch of cases in 2001-2002. But that’s because the economy was in a recession.

April 17, 2000

May 27, 1999

September 11, 1998

October 12, 1990

October 16, 1987

October 11, 1982

There were a bunch of cases in 1974. But that’s because the economy was in a recession.

There was one case in 1970. But that’s because the economy was in a recession.

August 31, 1966

May 31, 1962

Here is what the S&P 500 (U.S. stock market) did next.

June 29, 2016

This came after the S&P 500’s 6%+ “small correction”. The stock market continued to soar throughout 2016 and 2017. It never retested this level.

August 11, 2011

This occurred after the first crash in the 2011 “significant correction”. The S&P retested this 2 months later, but downside risk was limited.

April 17, 2000

This came after the bull market topped on March 24, 2000. The S&P 500 rallied over the next 4.5 months.

May 27, 1999

The S&P rallied over the next 1.5 months and then retested this level in the next 6%+ “small correction”. However, the S&P didn’t really break this low in 1999. The S&P went higher in 1999.