I was doing the Market Wrap yesterday for Talking Trading and in my usual look at markets I noticed that the arse had effectively fallen out of volatility in the markets I was looking at. I have dropped in a chart below which shows the 30 day HV of a variety of instruments, I have also plotted a 250MA through through the HV to give you a sense of the longer term average volatility. If you click on the image it will open up a larger version.
The interesting thing about this drop in volatility is that it seems almost universal. You will note that i have also included the US Dollar index and it to shows a drop in volatility. To my way of thinking this drop is indicative of complacency across asset classes – particularly equities. This is exemplified by the historically low levels of the VIX. Low volatility combined with trending instruments is a good thing for traders because it enables relatively larger positions to be built.
However, I do have to have to caution that low volatility is not a magic window into the future. This state of affairs could alter very quickly as the principal of mean reversion asserts itself. Mean reversion is immutable and never be denied.
