Stock Market Volatility Is Shrinking (Implications + Game Plan)

Sometimes, we need to step back and look at the big picture, because if we don’t and only focus on daily gyrations, which is what the apps and shows make us look at as they want to tell us about what is happening on that day or hour as that is “news,” it’s easy to get fooled by market action.

At the same time, making money in the markets isn’t so much about predicting the future as it is understanding the current trends and their implication.

Right now stock market volatility is actually shrinking and has been doing so for about three months. And this isn’t just happening with stocks, but also with bonds and precious metals.

This isn’t a shock, because last year we saw record volatility when the stock market crashed with the S&P 500 falling over 30% last Spring and then rallying back up to new highs, in a move that was one of the biggest percentage gaining moves ever in such a short amount of time.

Record volatility like that is most likely to lead to months if not even a year of shrinking volatility, which will eventually lead to a new volatility expansion. But right now volatility is shrinking.

When last year came to an end on December 30, I did a post saying that this was likely to be a defining feature of this year when I wrote, “I expect we’ll see the market continue to trade the way it has in the past few weeks with falling volatility while investors take on greater risks, when it comes to buying more on margin, buying more call options, and buying riskier stocks and then at some point next year, probably in the second half, things will blow up on them again.”

So, far this type of thing has played out in the crypto market – where investors went wild and got trapped buying crypto collectible coins when Bitcoin went above $50,000. So, the blow-up has happened there for now – and in some of the fad stocks that were big winners last year, but I don’t see a sign of a major top when it comes to the S&P 500 and the broad market.

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