It is only on the long-term chart that we can see how relatively modest the rise in volatility has been since stocks began to plummet last week. The spike is merely the fifth largest since the last bear market ended in March 2009. Note also that even though volatility has ebbed over the last four years, it never dried up so completely that it significantly exceeded the midpoint support near 11. A curious fact about this monthly chart is that no volatility spike has ever produced a follow-through spike of equal magnitude. This is the same as saying there are no completed C-D legs on the chart. What might that mean? My interpretation is that, following a bear market’s initial plunge, alternating periods of hope and fear tend to remain more or less in balance until capitulation selling wipes the slate clean. We might also infer that once a volatility spike has ‘impulsed’ above two prior peaks, the bear would be well nigh unstoppable. In this case, it would take a push exceeding 48.20, an approximately 72% rise above current levels. _______ UPDATE (9:16 p.m. EDT): Yesterday’s spectacular spike topped at 53.29, but I’d be surprised if that high doesn’t stand for at least a couple of weeks. Its usefulness will depend on whether, for once in a rare change, we see a follow-through leg. If so, the buy signal it generates could tell us if the other shoe is about to drop.
