While it’s been a wild ride for most exchange traded funds (ETFs) this summer, it seems volatility might be calming down as the overall markets have been doing well lately. Last week, the CBOE Market Volatility Index (known as the VIX) closed below its 32-week moving average, says Bernie Schaeffer for Forbes Market Outlook. This same sort of scenario occurred in August 2006. So if history were to repeat itself, the VIX’s close below its trend line could mean that stocks have been given the "all clear" sign for the remainder of the year. Also, the VIX generated a positive sign on Oct. 5 when it dropped about 8.3% while the S&P 500 rose by more than 0.85%. Again, if history is any indication, those moves could have bullish implications. What generally happens 20 days after this occurs, the market goes higher 69% of the time, and the average gain in the S&P 500 is 1.65%.
Another factor that indicates the broad market is doing well was the high performance of the Russell 2000 Index. Small-cap stocks tend to do well in recovering economies. Last week, Russell 2000 Index and the ETF that tracks it, the iShares Russell 2000 Index (IWM), jumped nearly 5% higher. If IWM continues to increase, it could help put small-caps on a serious rally as well as dispel the notion that large-caps are the place to be.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.