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Morning Matters:

Volatility Falls?
by Geoff Garbacz

May 1, 2018

The first four months of the year are in the books and what a year it has been so far. January was one of the strongest Januarys on record. February and March turned into some of the most turbulent back to back months seen in several years. April refused to go quietly as it ended with three days that lost more than one percent and two that dropped more than two percent.

So we are now at fourteen days for 2018 with losses of more than one percent. It is notable that there have also been seventeen trading days that saw the S&P 500 gain more than 1% as well in the first four months of the year.

Last month we stated, “It is highly doubtful that the current trend of volatility continues beyond late April so we expect a reprieve then until later this spring, June, or summer before we return to another prolonged period of volatility”. There are several hints that this is taking shaping.

Our intraday range on the Erlanger Value Lines is starting to fall back into a normal range on the S&P 500, Russell 2000 and Dow Jones Industrial Average. Since April 16th, there have been six sessions where none of these indexes had a daily range that was greater than their average from 2011 through 2017. An additional three trading sessions since April 16th saw the Russell 2000 trade below its historical range as well.

Second, we are not getting back to back days where the S&P 500 is losing more than -1%. This pattern happened in both February and March. It did not in April. The three days that lost more than one percent fell on April 2nd then the 6th and finally the 24th. The number of days between such losses confirms that volatility is indeed dropping.

So the next couple of months should allow investors to become more relaxed with the state of the market. The opportunity is to try and take a more aggressive approach to maximize gains before volatility returns.

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