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Emerging Markets: Time to Buy?


Is Low Volatility Signaling a Market Top?

Charter Trust Company

By Mark Ungewitter

June 11th, 2014


We keep hearing that today’s near-record-low volatility is signaling an imminent market top.  To test this proposition, we examined implied volatility back to 1986 using the VXO index.  (VXO behaves similarly to VIX, with the advantage of a longer track record.)  Friday’s VXO reading of 10.3% was a near-record low.  Weekly readings below 11% are rare events, occurring only 3.6% of the time.  The chart below flags all such occurrences in red.  Most of the time, the market has moved significantly higher after it enters a super-low volatility environment.

We conclude, therefore, that today’s low volatility is not sufficient reason for a market top.  Historically high volatility, on the other hand, is a good indicator of market bottoms.   




By |2014-06-12T09:39:26+00:00June 12th, 2014|Categories: Market Strategy Report|0 Comments

About the Author:

Mark Ungewitter is a Senior Vice President & Investment Officer at Charter Trust Company. He was formerly Director of Portfolio Management at Investors Bank and Trust in Boston, Massachusetts. He holds an M.S. from Bentley University and a B.S. from Massachusetts College of Liberal Arts. He is a member of the American Association of Professional Technical Analysts.

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