I’ve been talking about corrections all year but I think we are now in it.
In my article a few days ago I wrote:
I will watch for increases in volatility, decoupling of link instruments and breaks from long term trends.
Well here we are in just such a situation, with at least two out of three in play.
Volatility suddenly bursting on to the scene is a strong indicator of a change in direction.
When a group decides the trend is dead, the remaining participants war with them and create the sort of see-saw action we are getting.
The forces pushing trend continuation are effectively passive and inertia and the forces pushing to break with the trend of the past are active. As such a continuation has a lower probability. A burst of volatility marks the end of rallies and slumps.
You can look at this another way, when the market knows the future, it travels there on rails, when it doesn’t, the market flaps all over the place and random moves rule. Volatility is an indicator of a lack of certainty of the future. You could lens that as risk, but I’d prefer not to for this purpose.
In any event volatility is not the trends friend, in fact it is likely the start of the “bend in the end” that ruins all trend followers day.
Here is the volatility burst:
To me this is the red flag I’ve been preparing for. It looks drastic to me. The question is how low would it go if the dam does burst?
So a crash up to Christmas. Well I hope not but I fear so. I am positioned appropriately but Im not massively short, Im heavily in cash.
However the market doesn’t care what I think, it will do what it has to do and for me right now it looks ready to spring off a cliff.
Agree or not, every investor needs to be on their tip toes for the next few weeks because now is not a goldilocks moment. Volatility is danger and danger is abroad.