Saturday, July 19, 2008

Oil Volatility and Market Psychology Perspectives for a Weekend

* Illusion of Volatility? - Just at the time the CBOE rolls out a VIX for the oil market, we seem to be getting quite a bit of volatility in the price of a barrel of crude. Interestingly, however, my look at the 20-day moving average of daily price volatility in West Texas Intermediate crude suggests that current volatility is only modestly above average for the period 1984 - present. The reason for this? You can see the breathtaking rise in crude prices since 2002. A 2% move in crude prior to that time was a move of 40 cents or so. Now, a 2% move is over $2.50. In percentage terms, the latest series of moves in the oil market have not been unusually volatile. But we are anchored to the prices of a bygone era, and that makes the changes at the pump--and in the pits--seem quite extreme.

* Evolving Market - Great historical study of how price patterns evolve over time in the stock market.

* Extreme Negative Sentiment This Past Week - Interesting observations from Richard Peterson's blog, which covers both trader and market psychology.

* Hope Comes at a Cost - Excellent review of research from CXO Advisory on how active trading strategies lower average market returns.

* When Markets Rise on High Volume - Quantifiable Edges finds a worthwhile edge.

* Thanks - For the continued positive comments on the Twitter posts, which have expanded to include links to key market themes, summary of market indicators, upcoming economic reports, and occasional market observations.