Having a look at the S&P500’s Outlook and Volatility Ratings as it is currently experiencing a long period of low volatility in the market, it is clear that Volatility is about to start rising again – a long overdue recovery. Since this is happening, the possibility of additional short term price movements like rallies are very possible.
A simple way to determine this is to observe the movements of the market. This shows us that stocks are going up and down within the market in an orderly manner. It should be noted that just as Volatility levels are climbing and continuing to climb, the potential for further sharp declines, both in the short term and long term, seems to be decreasing as well.
While it may be nice to have a simple way to see that the potential risk is being reduced, it is also important to note that traders are making more trades. An increasing number of short term trades will increase the total amount of risk for those who rely on technical analysis to analyze risks. The potential for excess profits is also going up, which is another element to consider.
It should be noted, as this article is written, that the potential profit potential is very limited. The reason for this is that the underlying assets are trading in too small of range and resistance levels – even though they are at all time highs.
This is because technical indicators, including Stochastics, are reflecting the obvious fact that it’s not looking as rosy as it used to. All indications are that in the near future prices will drop another 10% or more. This would cause a lot of pain if it were to happen, but things are much more difficult than they seem.
That same fear of price dropping another 10% into the long term is also showing up in the potential profit potential of commodities. This is good news because the market is already starting to gain some momentum once again.
The difference between this past rally and this current one is the fact that there was not a seasonal growth zone of commodities to support the rallies. Not being part of a seasonal growth zone was a benefit as less volatility was required and that much more is now happening in the market with the hope of stopping the losses.
How long the rally can continue is unknown but the market is holding up well under the most volatile markets. Given the fact that now it appears the market is going to have to drop a little more to clear a lower level, the market is beginning to make a profit again as it picks up from the lower lows it has been at.
It may not be a certainty but the current S&P500 Outlook and Volatility Ratings are showing that many markets are ready to gain back their lost ground. If the current market trends continue the traders who do not have this information will lose money.
No one wants to see a sharp break so they look for signs to let them know when the bottom is about to come. The recent drop in the market has been long anticipated and the short-term charts show that the market is being prepared to bounce back after the new lows have been reached and priced in.
Support is in place for this move and this is where traders have been waiting. When they see a support level on the daily chart, as well as a trend line setting a break, they know it is time to pull out and take advantage of a relatively large move to close the gap for a profit.
The S&P500 Outlook and Volatility Ratings should continue to give traders the signal that many markets are now in the process of recovering. So long as they act quickly, they stand a great chance to gain the large gains they are hoping for.