Forecasting a Volatility Tsunami

Let me first say a huge thank you for all the kind words and messages I’ve received regarding winning the Charles H. Dow Award. This past week was the annual Market Technicians Association Symposium in New York. Traders from all over the world came together to discuss the markets, different strategies and approaches to trading, and some of the new technology that’s being developed around technical analysis. It was also great getting to meet many of you that have been following this blog and/or me on Twitter/StockTwits. I always enjoy getting to learn new ways of viewing the financial markets and getting to discuss new ideas with other traders and asset managers.

Needless to say, it was a huge honor to receive the Dow Award on Friday in front of so many professionals I have such great respect for. I’ve uploaded the paper to the SSRN and I look forward you all getting to read my paper, Forecasting A Volatility Tsunami.

It seems we are inundated with the idea that just because the Volatility Index (VIX) is at a low-level that it will immediately spike higher. I found in my research that there’s a better way to forecast these spikes in the VIX, a better way to identify a market environment that has often lead to large moves in volatility. I liken my findings to the forming of storm clouds, not all clouds lead to rain but nearly all rain storms are preceded by the clustering of clouds. The market environment I describe in my paper doesn’t always lead to spikes in the VIX but nearly all spikes have been preceded by this unique price action pattern found in the volatility market. As a Portfolio Manager and someone who places a great value on risk management, I believe it’s important to know when risks of large volatility spikes are present and I believe my paper lays the foundation for this as well as for further research on the topic to be conducted.

Here is the link to read my full Charles H. Dow Award winning paper: Forecasting a Volatility Tsunami

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

A Cycle Peak Is Approaching for the U.S. Equity Market

I try to keep an open mind when it comes to applying various forms of analysis to financial markets. I of course have my preferences: pure price and volume analysis while incorporating tools to evaluate momentum. However, there are many other tools at the disposal of a trader, some can be beneficial while others are often just variations of noise. While I do not heavily use cycle analysis in my research, it is something I keep an eye on.

I’ve mentioned the currently cycle several times on Twitter as well as a couple of blog posts…

On August 8th of last year I tweeted out this cycle was peaking. The S&P ultimately declined 5% before the post-election rally took hold. In January of last year I also tweeted about the cycle before equities dropped 11%. On April 21, 2015 I wrote an article for See It Market highlighting the cycle, stocks then dropped about 12%. And in 2014 I wrote a post, Is A Cycle Peak Coming Later This Year? Which was just before the S&P 500 declining a little over 7%.

I don’t bring these tweets and blog posts up to pat myself on the back but to show that I didn’t just make up this cycle yesterday by formfitting the data.

We are now at a point where the cycle is turning once again and with equities at/near (depending on which index you look at) new highs, the risk is to the downside. The amount of prior declines has not been bull market-ending but instead have been buying opportunities. Based on the strength in the breadth data, I don’t see a major argument why this time should be different – i.e. a 5-10% drop before buyers step back in. I’m not saying that’s what will happen, but that’s what’s taken place over the last several years when the cycle has topped or bottomed. We’ll see what Mr. Market brings in the coming weeks, but it appears the risk/reward is not overly favorable from a cycle standpoint.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Charles H. Dow Award

I’m extremely honored to announce that I’ve won the 2017 Charles H. Dow Award given by the Market Technicians Association (MTA). The Dow Award is given by the MTA for research completed that’s helped advance the study of technical analysis and has been received by many authors and money managers I greatly admire. My research paper, “Forecasting A Volatility Tsunami,” which takes a unique look at market volatility will be released in several weeks and I’ll be sure to share it on the blog once it’s made public.While I completed the paper over six months ago, the topic and findings are quite pertinent during the current market environment.

After joining the MTA and earning my Chartered Market Technician (CMT) designation several years ago, it was a professional goal of mine to complete a piece of research that was worthy of receiving the Charles H. Dow Award. I consider it a great honor to have my work acknowledged and I look forward to the feedback it gets by those I respect in our industry.

From the Market Technicians Association:

In 1994 the MTA established the Charles H. Dow award to highlight outstanding research in technical analysis. The Award has received over 160 submissions, and recognized 17 papers for their excellence. Of the 21 authors/coauthors who have won, eight have gone on to publish books based on their submissions to the Charles H. Dow Award. Winners have presented at the MTA Annual Symposium, local chapter meetings, and participated in MTA podcasts and/or educational web-series.

Charles H. Dow Award (MTA)

2017 Market Technicians Association Symposium Press Release (MTA)

[Update: The research paper can now be downloaded at SSRN: Forecasting a Volatility Tsunami]

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.