The most unusual aspect of the entire October 2002–October 2007 bull market was the lack of volatility, the record-long, almost stress-free period of time without even a normal 10% pullback in the stock market. 

Then comes the bear market, and the S&P 500 plummeted 20% from its peak last October to its March low. It then rallied 12% off that low over the next several weeks, only to plunge 16% to a new “bear market” low in early July, which had it 24% below its October peak. And its “summer rally” has now lifted it 8% off that last low. 

With each plunge, pundits warn much more dire straits lie ahead. With each rally, Wall Street assures us the bottom is in. 

The unusual volatility is in all markets. 

Gold surged up 57% from last August to its record high above $1,000 an ounce in March. It then plunged $160 an ounce in just four weeks, only to rally back up $133 in July, and then plunge $200 an ounce to last week’s low. It then surged back up $39 an ounce, or 5%, in just five days last week. Yet through all the activity, gold has made no headway since January 1, and is in fact down $35 for the year to date. 

The price of oil was $99.60 a barrel on January 1. It plunged 13% to $87 in five weeks, then surged up $24 a barrel to a record $111 over the next six weeks, only to drop back to under $100 five days later. It then rose steadily over the next four months to $147 a barrel a few weeks ago, convincing everyone that $200 oil was only weeks away. But instead, its next move was to decline $36 back down to $111 a barrel as of two weeks ago. (See chart of why my readers expected that). And now last week it spiked back up 10% to $122 in just four days (and then fell back a big $6.62 a barrel in just one day on Friday). 

The U.S. Dollar Index (Stock Forum) began the year at 76.01, but immediately resumed its seven-year decline to a new low at 71.19 in April. Then, after drifting sideways for a couple of months, it spiked up almost 9% in four weeks, a big move for the dollar, reaching 77.41 last week. But it was back to the downside last week, closing just about exactly where it was on January 1. 

These markets, the dollar, oil, gold, and stocks, are all inter-related. So every time something hits the news that affects one, the rest respond in knee-jerk reactions. 

The upside of volatility is that it provides repeated opportunities for investors and traders to make gains from the upside and the downside (although often not allowing much time to relax and catch one’s breath between reversals). 

However, the downside of volatility is that it can cause investors still thinking conventionally to buy and sell at the wrong time, expecting that each change in direction is the beginning of a new long-term trend. That thinking is understandable given the unusually low volatility we all got used to in the 2002-2007 bull market. 

But we can know from history that periods of unusually low volatility are followed by periods of unusually high volatility. 

And I believe we can know for sure that this period of higher than normal volatility will be with us for some time to come. 

How could it be otherwise? Most industry insiders, experts, and analysts, even the Fed, now project that the major uncertainties regarding the financial system, economy, and inflation, not only in the U.S. but globally, will be with us for at least another year. 

Every few weeks will come glimmers of hope for awhile, followed by ugly reality checks, the combination of which will have Wall Street and investors cycling repeatedly between optimism and fear, the driving forces of volatility. 

My advice is to learn to harness it for profits by trading for intermediate-term market moves, forgetting about the long-term until the volatility calms down.