Sunday, January 27, 2008

Relative Volatility and Other Weekend Perspectives

* Spikes in Volatility - Above we see a chart from 1990 to the present, mapping out the ratio of the average daily high-low range over the past five sessions in the S&P 500 Index ($SPX) to the average daily range over the past 200 days. Spikes in this measure of relative volatility have occurred in August, 1990; April, 1994; July, 1996; October, 1997; September/October, 1998; July, 2002; and August, 2007. On the whole, these were good times for intermediate-term stock purchase. We are currently seeing another such spike at present. Going back to 1990 (N = 4535 trading days), we have had 80 occasions in which the ratio of five-day volatility to 200-day volatility was above 2.0. Ten days later, the S&P 500 Index averaged a sizable gain of 1.95% (57 up, 23 down). That is much stronger than the average ten-day gain of .32% (2584 up, 1871 down) for the remainder of the sample.

* Fed Perspectives - We're coming up on a Fed announcement this week, and Charles Kirk has linked several perspectives on what to expect; see also the link to the shocking list of large companies that may go away in 2008.

* Textbook Pattern - Trader Mike charts the support that is now acting as resistance across the major averages.

* Share Buybacks - Abnormal Returns returns with more interesting links, including a look at whether stock buybacks live up to their promise.

* Discipline - Thanks to El Mercadillo de Europa for their Spanish language post on trading discipline.

* Weekly Wrap-Up - Phil summarizes the wild week that was; see also the Optionsage posts that are part of the site.