If you fell asleep two weeks ago, and then just woke up this morning, you wouldn’t notice much of a difference in the broad stock market.

The S&P 500 started the morning of April 13 at about 2670. The index closed just under that level yesterday. So, there hasn’t been much movement.

But there has been a whole bunch of volatility.

Over the past two weeks, the S&P 500 has traded as high as 2717, and as low as 2612. That’s a 105-point trading range – or 4% – in just two weeks.

Let that sink in for a minute. What a difference between this year and last year.

In 2017, the market suffered from record-low volatility. I can’t count the number of times I commented on the ridiculously small daily trading ranges in the S&P 500. In a market with millions of participants, and trillions of dollars at work, it seemed outrageous – to me at least – that the average intraday move in the stock market was less than 0.4%.

Of course, that’s certainly not the case so far in 2018. Ever since the market peaked in January, we’ve seen huge intraday moves in the S&P 500. It’s not uncommon anymore to see swings of more than 2% between the daily highs and lows.

That’s a dramatic increase in volatility. And it’s here to stay for a while.

As I reminded traders in my very first essay of 2018… low levels of volatility are always followed by higher levels of volatility. We had low volatility for almost all of 2017. So, I expect we’ll see high volatility for almost all of this year.

Take a look at this long-term chart of the Volatility Index (VIX) from way back, starting in 2005…

From 2005 through about mid-2007, the VIX traded at low levels – between about 10 and 16. Yes, there were a couple of times in that period when the VIX spiked sharply higher. But it was temporary. The VIX quickly fell back into its depressed range.

Notice, though, that starting in mid-2007, the VIX spiked higher, and it sustained that higher level for the next two and a half years.

In other words, the period of low volatility that lasted for two and a half years from 2005 until mid-2007… was followed by a period of high volatility that also lasted for two and a half years.

Here’s a more recent chart of the VIX…

The VIX spent 14 months trading in a depressed range between 9 and 16. In February, the VIX spiked sharply higher, and it has sustained a higher level. This new period of higher volatility ought to last at least as long as the previous period of low volatility.

So, get used to larger moves in the stock market. This condition is going to last for a while.

Best regards and good trading,

Jeff Clark

Reader Mailbag

Today, some responses to yesterday’s essay on natural gas…

Thanks for the tip! May get into natural gas.

– Nancy

Thanks, diesel. Interesting read. Natural gas prices couldn’t get much cheaper, and this move does buck the trend according to the chart. The question is play options or the commodity itself?

Individual companies probably won’t move much, but their stock prices are near their historical lows, so probably a good long-term buy anyway. I think it’s the only industry sector in the market with such low multiples, as the rest of the market sectors are basically expensive, and closer to their yearly high prices.

– Ernest

And a note on a recent Delta Report recommendation…

Jeff, based on your XOM recommendation, I bought the calls, and wow did I do well. My only problem – I exited too early with “only” a 100% gain. I did the same with Kinder Morgan and XLE. Thanks Jeff!

– James