Chart Advisor: Volatility Flirts With New Range

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

1/ Volatility Flirts With New Range

2/ Small Reversal for Small Caps

3/ Global Equities Hit New 52-Week Highs

4/ Silver Miners Reach an Inflection Point

Investopedia is partnering with All Star Charts on this newsletter, which both sells its research to investors, and may trade or hold positions in securities mentioned herein. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice.

1/ Volatility Flirts With New Range

Unlike financial assets such as stocks, commodities, and bonds, which tend to trend over longer time frames, stock market volatility and the volatility index (VIX) tend to mean revert.

One of the big developments of the past few sessions is new multi-year lows in volatility as the VIX revisits levels it has not seen since the pre-COVID era on a weekly closing basis.

Here’s a look at a weekly chart of the S&P 500 Volatility Index (VIX):

Source: All Star Charts, with data provided by Optuma

Whether or not the VIX is about to snap back with a mean-reversion rally or simply settle into a new and lower range is the big question. If the former happens, it means that some much-needed corrective action is probably underway for equities. 

However, if we don’t get a bounce in volatility here, the price action could begin to look a lot more like other bull market periods such as 2017 or 2019.

2/ Small Reversal for Small Caps

Stock market bulls have been looking to small- and mid-cap stocks to pick up the pace and start participating in a more constructive way. Late last week, the Russell 2000 (IWM) answered those calls by registering its best single-day performance since November on Friday.

Here’s a zoomed-in view of the popular small-cap index, sporting what appears to be a head and shoulders reversal pattern over the past few months:

Source: All Star Charts, with data provided by Optuma

IWM resolved higher from this textbook basing formation last week when it eclipsed its pivot highs from April and May and reclaimed the anchored volume-weighted average price (AVWAP) from its year-to-date highs (shown in blue). 

Also notice how IWM took out the 200-day moving average on last week’s move. We’ve color-coded the long-term mean to reflect the direction of its slope. Seeing it flip from green to red several times already this year is a good reminder of the sideways range that small caps remain in over longer time frames. 

With that said, we could see some follow-through from the Russell 2000 in the coming days and weeks as long as it holds these new highs. After some give-back in today’s session, buyers showed up to defend this level as we headed into the close.

3/ Global Equities Hit New 52-Week Highs

When it comes to international equities, more and more countries are participating to the upside.

Whether you analyze the U.S., Europe, or Asia, the charts look more or less the same.

Below is the All Country World Index (ACWI) breaking out of a multi-month base to new 52-week highs:

Source: All Star Charts, with data provided by Optuma

As you can see, after carving out a bearish-to-bullish reversal pattern, price finally absorbed overhead supply at the top of the range.

Although momentum has been in a bullish regime for some time now, we are waiting to see an overbought reading as a potential confirmation of the recent breakout.

As long as we’re above a shelf of former highs in ACWI, the path of least resistance likely remains higher for global equities.

4/ Silver Miners Reach an Inflection Point

Gold and other precious metals have experienced increased selling pressure in recent weeks. As a result, risk-averse behavior along the fringes of the space is reaching an inflection point.

Check out the Silver Miners ETF (SIL) vs. the iShares Silver ETF (SLV):

Source: All Star Charts, with data provided by Optuma

The SIL/SLV ratio speaks to the risk appetite in the same vein as Gold Miners (GDX) vs. Gold (GLD). SIL/SLV is simply further out on the risk curve than GDX/GLD.

The last time this ratio traded down at these levels (early 2016), gold put in the low of its current decade-long base. And both snapped back, ripping higher along with other precious metals.

A similar reaction to the one we witnessed in Q1 2016 would go a long way for the bull case as gold churns just below its former all-time highs.

Originally posted 5th June 2023

Join the Discussion

Thank you for engaging with IBKR Campus. If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.

Your email address will not be published. Required fields are marked *

Disclosure: Investopedia

Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy.  While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Investopedia and is being posted with its permission. The views expressed in this material are solely those of the author and/or Investopedia and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: ETFs

Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.