The melt up in indices continues and I suspect the short sellers will be squeezed throughout earnings seasons. Now’s a good time to be long but sooner or later the party will end. One day, when we least expect it, volatility will pick up and the first spike will probably be down. My guess is that itâ€™ll probably have something to do with the sub-prime mess.
Take a look at the low volatility we’ve had for 4 years in the Nasdaq QQQ’s. Heavy volatility clusters happened between 1999 and 2002 on both the positive and negative side.Then from 2002 through yesterday, we’ve had a period of relatively low volatility with an occasional spike.
So what does this mean? I really do think that we’re overdue for some negative volatility event in the markets for sure.Perhaps the short sellers have the right idea but their timing is off! :)