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Volatility Bulls: The New Permabears

Each time there is profit taking in the stock market, the permabears of the early phase of the uptrend show up as volatility bulls. This is hilarious.

Permabears have made an association in their minds of high volatility to large corrections and bear markets but they are wrong more often than they are right although it seems they never get tired of it. This is really amusing.

Volatility may rise before major tops but this is not necessary as markets can fall hard without advanced warning. However, it appears that volatility is always higher than average at the bottom of major corrections and bear markets. These empirical facts can be deduced from the S&P 500 daily chart below.

The first indicator pane shows daily arithmetic returns. Is volatility increasing? Nah…

Some permabears who argued in 2011 that the S&P 500 will soon retest 667 levels and think they have covered their tracks by deleting posts and tweets, announce a rise in volatility each time there is little profit taking resulting in a 1% drop in S&P 500.

The second indicator pane of the above chart shows the 5-day average of the absolute daily reruns. The last value of 0.571 is below the mean and much below one standard deviation from mean. At least they could have waited to announce a rise in volatility after a standard deviation move. No, they are so anxious to lose again. This is hilarious.

Of course, volatility will rise at some point and it is only natural to have a bear market. But the old permabears – now turned volatility permabulls – after relentless failed calls have lost any right to declare victory and are only exposed each time they blog or tweet. It will be amusing to see all those permabears/volatility permabulls to come out in the next bear market and claim they were right.

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Charting and backtesting program: Amibroker

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