- The Dow Jones average seasonality graph shows an October dip
- The bears and bulls chart, which indicates too few bears, is pointing to the scary concern over a lack of fear in the markets
- The volatility index is in “a bit of a twilight zone,” says ValueTrend president Keith Richards
- The VIX has been trending up since the start of the year
October is host to Halloween and all the ghosts, ghouls and movies aimed at giving us a good scare. In the video above, Keith Richards, president, chief portfolio manager and technical analyst for ValueTrend, discusses some of October’s scary situations to beware of on the market side as well as some short-term signs of volatility in the coming weeks as we head into the winter months.
For the first stock market scare, Richards looks at the Dow Jones average seasonality graph, showing the October dip that is more pronounced In election years. Second, he looks at the bears and bulls chart, indicating too few bears and the scary concern over a lack of fear in the markets at this time.
Richards addresses the CNN Fear and Greed Index, which is edging on extreme greed, what that means in the markets, and additional things to be wary of, including the upcoming U.S. election.
Richards points out that October is not normally a negative month and on average has earned about 1 per cent a month since 1950. However, he adds that when October does fall, it “falls hard” which tends to be amplified by an election year, noting that usually, “from about mid-October into that electoral day (we get) a lot more volatility than a typical October.” He stresses that volatility is a two-way word, and it can swing upward or downward.
In regards to volatility, Richards points to the the volatility index (VIX) and notes that when a market is going up, volatility normally decreases. However, at this time he says this is “a bit of a twilight zone.”
“And this is really scary actually, in real life, the VIX is climbing, and it has been climbing, well, since literally close to the beginning of this year, but so is the market. So, this doesn’t make sense.” Richards says.
He clarifies that under normal circumstances, if the VIX is climbing, the market should be going down, as people want more premium for this uncertainty. But that is not what the market is currently advocating.
In general at this time, Richards emphasizes there are no absolutes. With a higher VIX, he sees a bit more risk and is holding a little bit more cash right now.
“So we know the trigger points to signal when we should do things. But I would say that if you have cash already, I’d maybe be cautious about just dumping it in the market right now given the risk that I’m looking at.”
Keith Richards, ValueTrend president, chief portfolio manager and technical analyst
About Keith Richards
Keith Richards is regular guest on BNN Bloomberg’s “Market Call” and a contributor to several financial publications such as the Financial Post. He writes in depth on timely market topics on his blog, which can be found at valuetrend.ca.
Check out Keith’s How will financial markets react to the upcoming U.S. election?
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