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Mister Market’s Worsening Bi-polar Disorder….

Volatility is back.  Well, actually, the last year has been more volatile than you likely think.  It’s just that the rate of change in volatility has been extremely short-lived when it’s been here.  That is, the last 4 times the S&P 500 has declined the selling has been met with increasingly voracious buying.  In other words, as Mister Market’s bi-polar disorder flips he actually seems to be learning from the events of the past.  You can see this in the VIX in the last 12 months where sell-offs have led to high and increasingly brief periods of fear:



Of course, the assumption in this market response is that the future will always reflect the past.  Which essentially means the market’s bi-polar disorder is combating a nasty case of recency bias.  In other words, this guy looks like a big mental mess.  This sort of action can keep behavioralists up thinking for days….As for the rest of us, it just results in a lot of lost sleep.

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