Volatility Spike, Parts III and IV

by: Barry Ritholtz March 31, 2008    
Barry Ritholtz

Barry Ritholtz

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On Thursday, we noted the increase in volatility via a Financial Post column. Saturday's chart porn comes via the NYT & Barron's.

First up, the NYT, with this gorgeous info-graphic on volatility -- note the peak in 2002, which marked the bottom of the Bear markets (Oct 2002/March 2003):

Chart courtesy of NYT

~~~

Second, have a look at Dick Arms' column in Barron's. Dick believes the recent volatility surge is a Bullish sign.

I have a lot of respect for Dick, as his methodology is statistically based and empirically driven.

Even if you disagree with him, you can at least respect his methodology, which has zero cheerleading content in it.

Chart courtesy of Barron's

Previously:

Buy Volatility (January 14, 2006)
http://bigpicture.typepad.com/comments/2006/01/buy_volatility.html

Sources:
For Stocks, It’s the Wild West, East ...
FLOYD NORRIS
NYT, March 29, 2008

Whiplashed? That's a Bullish Sign
Now Is the Time to Buy, Not Sell
RICHARD W. ARMS
Barron's, MARCH 31, 2008

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This article has 2 comments:

  •  
    Mar 31 10:46 AM
    There were spikes above 1.5 from 2000 to 2003, 6 or so on the chart, all the way down. Were each one of these buying opportunities?

    I respect the guy, but I'm not really on the same page when it comes to THIS buying opportunity.
    Reply | Link to Comment
  •  
    Mar 31 12:36 PM
    I too, have great respect for Dick Arms but any volatility or volume capitulation indicator (which is what the APC is) has a very short predictive window. Note the spikes on the left hand side of the Barron's chart indicating that volatility was high leading into and following the last market top in 2000. I count at least four volatility spikes of equal or greater magnitude leading up to the beginning of the March 2003 rally than what we are currently experiencing.

    In other words, bear market rallies are marked by explosive (bull trap) rallies so volatility spikes only mean a bottom of some sort MAY be approaching. No technical indicator I have come across tells you how big the ensuing rally will be or whether it will be short-lived or of longer-duration.

    Good information though Barry. I always enjoy your perspective.

    Matt Blackman Host www.TradeSystemGuru.co...
    Reply | Link to Comment
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