Oct 20 2008
Looking at Volatility in the S&P 500
Volatility, as expressed in terms of ranges, has reached where it peak in 1987, though not yet the highs from 2002. That’s what the monthly Normalized Average True Range (N-ATR) reading is telling us.
S&P 500 Monthly chart with Normalize Average True Range
The N-ATR reading is simple ATR divided by price to express it at a %, thus making it more historically and cross market comparable. Right now the monthly reading is just above where it peaked out in November 1987 (keeping in mind that ATR is an average, so it will tend to lag). If October were to make no further new intraday lows, the N-ATR would be about 11.6%. Back in 1987 it was about 11.1%. The highest reading I have is the 13.9% from 2002 (my chart only goes back to 1980). My guess is that we’ll eventually see N-ATR make a new high in this cycle as the average drops some of the smaller range months that are currently still in the mix.
The good part of all this is that these peaks in N-ATR come at the market bottoms.
In case you’re wondering, N-ATR on a daily basis is at about 7%. That is nearly 3 times as high as it was back in March at the next highest level of the last 2 years. Weekly N-ATR is at about 9%, well above the 6.5% peak from back in 2002.
Here are some other posts which might interest you:
