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Adding to John's comments on the VIX...over the past two months, the VIX has been stuck in under a 5-point range. During the history of this indicator, such a small range over such a sustained period is quite unusual, as less than 5% of the days have shown such a small range over the prior 42 days. For those days that showed the smallest range in the VIX over the previous 42 days (the bottom 5%), the next 42 days showed a higher average range more than 85% of the time. This suggests that it is likely that we will see a pickup in volatility (as measured by the VIX) sooner rather than later.

If we look at the VIX's range over the past two months as a percentage of the VIX itself, then our current situation has been the least volatile in history, except for one other period - mid-July 1997. During that time, the VIX was also stuck in a very tight range heading into the summer months, with a slightly smaller range than the current one. The result was a small rally before the market declined into August and September. The market eventually recovered during the latter half of September and October before the crash in October of that year. Interestingly, the next least-volatile period was early June 1989. The result of that was a market decline throughout June, then a recovery during the rest of the summer - then a mini-crash in October of THAT year as well. It would be ridiculous to leap to the conclusion, based on these precedents, that we will decline for a month or so, recover, then crash in October. But I do think it's reasonable to expect an increase in volatility over the coming months - and as John states, an increase in volatility is normally associated with declining markets, not rising ones.

First, 1997...

And now...

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