The Volatility indices (VIX and QQV), are the insurance premiums paid by buyers of Calls and Puts to protect or profit from large price swings. The higher this premium, the higher the fear and expectations of large price moves. The markets can actually rise or fall with a rising VIX and vice versa like we saw in the late 1990′s and early 2000′s.
11 year Solar Cycle and Volatility
Volatility and SunSpots
To get a look at sentiment prior to the 1987 crash, we can take advantage of a correlation between SunSpot numbers and the Volatility index. While this linkage in behavior might seem strange, there have been studies correlating weather, harvests and industrial output and recessions with SunSpots. We can see by overlaying recessions over the SunSpot numbers that they match our expectations for high Volatility and Fear preceding these recessions.
Recessions and the 11 year Solar Cycle
Sunspots and Manufacturing since 1875
The Solar cycle correctly predicted ALL recessions except the 1974-75 one which was probably an extension of the 1970 recession that was correctly predicted. The last 5 out of 5 recessions were dead hits or for purist the last 5 out of 6 for an excellent prediction rate of 83% or better. The Solar cycle predicts we will get a recession in 2012-2014 after Volatility has peaked for this cycle. The modern prophet Edgar Cayce had the following to say about Sun Spots, and their relationship to Man, and the data we have uncovered seems to validate his claims.
“When the heavens and the earth came into being, this meant the universe as the inhabitants of the earth know same; yet there are many suns in the universe, – those even about which our sun, our earth, revolve; and all are moving toward some place. Astronomy is considered a science and astrology as foolishness. Who is correct? One holds that because of the position of the earth, the sun, the planets, they are balanced one with another in some manner, some form; yet that they have nothing to do with man’s life or the expanse of life, or the emotions of the physical being in the earth. Then, why and how do the effects of the sun so influence other life in the earth and not affect Man’s life, Man’s emotions? Man alone is given that birthright of free will. He alone may defy his God! How many of you have questioned that in thine own heart, and know that thy disobedience in the earth reflects unto the heavenly hosts and thus influences that activity of God’s command! For YOU – as souls and sons and daughters of God – DEFY the living God! As the sun is made to shed light and heat upon God’s children in the earth, it is then of that composition of which man is made, or of that termed the earth; yet, as ye have seen and know, there is solid matter, there is liquid, there is vapor. All are one in their various stages of consciousness or of activity for what? Man – GODLY MAN! Yet when these become as in defiance to that light which was commanded to march, to show forth the Lord’s glory, His beauty, His mercy, His hope, – yea, His patience, – do ye wonder then that there become reflected upon even the face of the sun those turmoils and strifes that have been and that are the sin of man? How do they affect man? How does a cross word affect thee? How does anger, jealousy, hate, animosity, affect thee AS a son of God? If thou art the father of same, oft ye cherish same. If thou art the recipient of same from others, thy brethren, how does it affect thee? Much as that confusion which is caused upon the earth by that which appears as a sun spot. The disruption of communications of all natures between men is what? Remember the story, the allegory if ye choose to call it such, of the tower of Babel. Yea, ye say ye trust God, and yet want to show Him how to do it! The more ye become aware of thy relationships to the universe and those influences that control same, the greater thy ability to help, to aid, – the greater thy ability to rely upon the God-force within; but STILL greater thy RESPONSIBILITY to thy fellow men. For, as ye do it unto the least, ye do it unto thy Maker, – even as to the sun which reflects those turmoils that arise with thee; even as the earthquake, even as wars and hates, even as the influences in thy life day by day. Then, what are the sun spots? A natural consequence of that turmoil which the sons of God in the earth reflect upon same.” – Edgar Cayce