Low Ten-Day Volatility: What Next?

We are seeing quite low volatility in the S&P 500 Index (SPY) over the past ten days. The high-low range during that period has been only about 2%. Since March, 2003 (N = 769), the average ten-day high-low range has been 3.72%.

Even more striking are the opening and closing prices for the index. Both have been within a 1% range for the ten-day period. Only one other occasion, early in March of this year, has been so non-volatile since March, 2003. In short, where the market has opened has been in a narrow band and where it has closed it has been in a narrow band. Movement in between (the high-low range) has been narrow as well.

I looked at those occasions when the opening SPY price over a 10-day period was within a 1.3% range (N = 46). Ten days later, the market was down by an average of -.39% (20 up, 26 down). This is *much* weaker than the average 10-day gain of .61% (471 up, 298 down) for the sample overall. In short, openings within a narrow band have been bearish for stocks over the intermediate term.

Here's another interesting finding. When I looked at the absolute value of the moves following 10 day narrow opens, the average size of the next 10-day moves was 1.25%. That is considerably smaller than the size of the average 10-day move (1.74%). It appears that narrow ten day periods generate smaller price changes over the next ten days, as well as more bearish ones.

Oddly, this pattern does not hold for closes in a narrow range. When the closes are within a 1.3% range over ten days (N = 33), the average size of the move over the next 10 days is still small (1.07% vs. 1.74% for the sample). There is no significant directional edge over the next ten days, however.

I'm going to need to do some deep thinking (more Intelligentsia coffee, s'il vous plait) and further investigating as to why a pattern might be present for opening prices but not others.

Addendum (10 minutes and 1 cup of coffee later):

I figured it out. The reason the narrow opens are significant is because the S&P open is highly sensitive to events from overseas markets. The fact that the opens have been in a very narrow range suggests that we have also seen low volatility worldwide, and that appears to be associated with underperformance 10 days out.