Volatility Is About to Surge: Here’s Where and Why
A look at 15 different assets that are exhibiting very rare volatility squeezes, confirming that a systemic volatility squeeze is underway and will lead to major moves soon.
Over the past few weeks, I’ve been closely tracking a rare and growing number of volatility squeezes across key financial markets, from stocks to precious metals to currencies, and publishing a widely followed series on the topic. It’s now clear that these squeezes across so many seemingly unrelated assets are not a coincidence. In fact, they are part of one massive, systemic volatility squeeze that I believe is about to resolve with a major move. In today’s update, we’ll take a tour of the most important assets currently exhibiting volatility squeezes, including many I haven’t shared before.
As a refresher, a volatility squeeze is a period of unusually low volatility that leads to a surge in volatility, known as a volatility breakout. These squeezes are important to watch because they frequently precede large market moves. If you haven’t already, I recommend reading my recent explanation of volatility squeezes to better understand the context of today’s report.
Let’s start with the bellwether S&P 500, which along with the other major U.S. stock indexes is currently exhibiting a volatility squeeze. At the moment, the trend and path of least resistance are both pointing higher, so the bias is to the upside for now. This move is being driven by growing expectations of aggressive Fed Funds Rate cuts in the near future. To learn more, be sure to read my recent report on the stock market volatility squeeze.
U.S. Treasury yields are also in a strong volatility squeeze, as I recently explained. Yields have been trending lower as expectations for Fed Funds Rate cuts continue to rise, which currently favors a downside bias. This aligns with the uptrend in U.S. equities. Treasury yields have also formed various chart patterns, including a triangle in the 10-year Note yield. A breakout from these patterns should offer a clear signal of where yields are headed once the volatility squeeze resolves into a volatility breakout.
Turning to other fixed income instruments, we recently saw a volatility squeeze in LQD, the most popular U.S. investment-grade corporate bond ETF. That squeeze is now resolving into a volatility breakout, which aligns with the ongoing downtrend in Treasury yields and the uptrend in equities. This move in corporate bonds likely has further to go. (Note: LQD is positively correlated with bond prices and inversely correlated with bond yields.)