Volatility Is at 3-Year Lows. Is That a Bullish Sign?
by Editorial Staff
Updated: September 01, 2023
Hey guys, Brian here. The latest issue of the European Financial Forecast is online.
Trading in August, pretty typical for late summer. Light volume, low volatility. We watch the seasonal tendencies, but they are just tendencies. Volatility usually picks up in the fall, but context is key. The Wave model provides that context.
And yeah, our interpretation of the waves is that this fall season could be one of the more volatile in recent memory. I'm showing a gauge of volatility that just fell to a 3.5 year low. That dates back to the highs in the market from before the pandemic.
So it's really not just seasonality at play here. Stock investors, they've been complacent for a while now. We think this is a pretty dangerous market for the bulls.
Now, we're not just looking at Wave structure this month. There's some important technical levels that are coming into play. This last month, I showed a price zone that was formed by two previous reversals. I'm going to update that chart, publish it again this month, because the behavior of prices within the zone is pretty interesting.
As you know, I kind of like to let the market draw the lines on the chart that the market thinks are important. And I just kind of watch these levels as long as they prove to be useful. And I think some of these technical levels are continuing to put out useful signals right now.
Last thing to point out is interest rates. The dynamic in bonds have really changed a lot since interest rates reversed back in 2020. Yields are way up, prices are way down, especially in some of these bond market darlings that popped up over the last few years. I show one of them this month in ESG debt, but I've also got a chart of real rates in Germany.
So we're taking the 10-year bund yield, we're subtracting the rate of inflation. I've got a few different ways of measuring that inflation rate. Read the discussion about this chart because I think it will give you a good indication of where we stand in this new interest rate cycle.
And just to spoil the punchline, I think we're still very early in this trend toward rising rates, and this is a market, as we know, that will impact every other market on the planet. So, drop me a comment, let me know what you think.
Enjoy the issue, and we'll see you back here soon.
Spot new EU trends BEFORE they start
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