The VIX may be trading at 52-week lows lately, but the Nasdaq has been nothing short of volatile. Less than a month ago, we all recall when the Nasdaq traded down at ‘extreme’ oversold levels (2+ standard deviations below 50-DMA), trading down over 5% from its prior 52-week high. As swift as the April sell-off was, the rebound was just as rapid, and just last Wednesday, the Nasdaq was back at new highs and at ‘extreme’ overbought levels (2+ standard deviations above 50-DMA). While it took 17 trading days to move from extreme oversold to extreme overbought for the Nasdaq, late last year, the shift was even more rapid when it took just 16 trading days!

Based on recent action, you’d think that these types of rapid shifts between extreme oversold and overbought levels were common, but the last year has been more of an exception than a rule. Since the Nasdaq’s inception in 1971, the current period is just the 15th time it shifted from extreme oversold to extreme overbought levels in 20 trading days or less. In the table below we list each of those prior periods along with the Nasdaq’s performance over the following one, three, six, and twelve months.

Are these types of rapid shifts a good or bad sign for the market? The last occurrence was certainly positive as the Nasdaq rallied more than 12% over the following three months and just under 19% in six months. More broadly, though, forward returns were essentially in line with the index’s average returns for all periods since 1971, especially over the following six and twelve months. Nothing extreme about that!

More By This Author:

Historic Moves In The Utilities Sector
No New Orders And No Spending In The Empire State
Small Businesses Sit Out Growth