Is There Volatility in the Markets

One of my all-time favorite movie lines was the famous “Crocodile Dundee” scene where Paul Hogan’s character is confronted with some youths who pull a knife and weakly attempt to rob him. He responds with, “that’s not a knife” and proceeds to pull his own which was way bigger than theirs.

5/10/2012

So goes the recent media hype about high levels of market volatility of late. As the chart above depicts: “that’s not volatility… that is algo noise.

From 11:30am thru 4:15 et yesterday, the ES remained within a sideways boxed, 8pt total range. Five hours, eight points. That’s not volatility. That is merely heightened chop.

Historically when markets go from complete doldrums to large-range swings and sustained trend moves, it is signaled by a sudden increase in sideways buzz. Yes the overall pace of price action has quickened this week apart from midday lulls, but price doesn’t go anywhere. Overall the ES stretched 20 points from low to high, but that was one ragged – jagged trip spent getting there. In the end, it closed within a stone’s throw of the open.

Increased sideways noise. Usually signals the start of a directional trend move and/or real volatility with expanded ranges waaaay bigger than recent, ahead.

So heads up on that.

For more daily updates from Austin, visit his blog at Coiled Markets.