DataTrek Research: The Dull Market Sell Signal

The market action of the past few weeks, despite a few large down days, has been largely sideways. While investors are a bit fearful whenever the market isn’t shooting up like a rocket, it isn’t the end of the world.

In fact, dull markets with a lot of long sideways trends, tend to be bull markets. Especially if market volatility remains low. But if that volatility starts to meaningfully pick up, a shift could occur.

Historically, volatility has averaged between 17 and 20, as measured by the COBE Volatility Index (VIX).

Today’s investors are coming off the low volatility period of the 2010s. That’s when markets often traded with a VIX under 15. Occasionally, the VIX will spike higher. It spiked to over 40 in August 2024, even as the stock market dipped a total of 8.5% from peak to trough.

With a current read around 20, volatility is within its historical norms, and a sign of a dull market.

What makes for a dull market? It’s much like the one we’re in now. Corporate earnings are growing. GDP growth is stable. Monetary policy is stable. And among other things, there are no issues in the financial system.

Looking at these metrics, it’s likely that the bull market trend is still intact, even if it’s dull right now.

For the full details on when to sell a dull market, click here.