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Goldman Sachs Warns: Stock Market's Behavior is "Worrisome"

The stock market's "fear" gauge just reached its lowest intraday level in 10+ years

by Bob Stokes
Updated: May 12, 2017

The CEO of a major Wall Street firm calls it "worrisome." A director of floor operations at the NYSE says it's "not normal." Find out why a volatility explosion might be just around the corner.



[Editor's Note: The text version of the story is below.]

Consider these observations from CNBC:

  • On May 9, the CBOE Volatility Index, or the stock market's "fear" gauge, reached its lowest intraday level since December 2006.
  • And, the S&P 500 has only registered two moves greater than 1% in 2017

If you think the market's persistent low volatility is strange, you're not alone (CNBC, May 9):

Even Goldman Sachs CEO Lloyd Blankfein warned May 9 that the low volatility is worrisome and that it is not a "normal resting state" for markets.

A director of floor operations at the NYSE for another firm also expressed the "not normal" view, and CNBC quotes a chief investment strategist who says such an extended quiet period "usually ends in a spike in volatility."

We concur. Yet our analysts have been discussing low-volatility with our subscribers since well before these latest developments.

Here's an example from our February Elliott Wave Theorist:

A few market commentators have noted with trepidation the low VIX -- which measures market volatility -- and they are right. Low volatility indicates investor complacency, and it doesn't last forever.

Of course, some periods of low-volatility will last longer than others, but a chart from our May 2008 Elliott Wave Financial Forecast shows you the peaks and troughs of volatility from 1999 until the date of publication. Below the chart, the commentary from the May 2008 Elliott Wave Financial Forecast starts with a reference to an earlier volatility discussion:

Volatility Explosion Begins

Here's how the December 2006 Elliott Wave Financial Forecast characterized historically low volatility ...:

High volatility tends to follow low volatility, and volatility is always greater on the downside. The "impending 'heart attack'" should generate some of the most pronounced volatility in history.

The anticipated rise has occurred, as shown on the chart. Some claim that the heightened volatility is a sign of a bottom: "Volatility Means Stocks Are Near A Low" [says Barron's]. But the Wave Principle tells us that the roller coaster ride will get a lot wilder as stocks fall further.

Of course, as we now know, stock prices continued to plummet through March 9, 2009.

We suggest that investors take a look at what the Elliott Wave Principle is showing now. The message is compelling.

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