Intraday Volatility

Here comes the rain again
Falling on my head like a memory
Falling on my head like a new emotion
--Eurythmics

Bear markets are often associated with increased 'volatility.' In the context of markets, volatility refers to the degree of variation in prices measured over some period of time. On an intraday basis, this variation is usually captured by the range (i.e., high minus low) in price.

From the charts, the increase in intraday price ranges since the early October highs is unmistakable. Over the past several trading days the intraday range in the Dow has been 500 pts or more--punctuated by a 1000 point surge in the last two hours of Wednesday's session.

One explanation for increased intraday volatility in bear markets is that optimists constantly want to believe that the worst is over, thereby bidding prices higher off of intraday lows only to get their heads handed to them when more supply subsequently hits the tape. On the other side of the trade, bears get jittery over the prospect of snappers (snap-back rallies) meaning shorts are generally in weak hands and prone to cover positions quickly--thereby creating self-fulfilling short covering rallies like the one on Wed.

At the end of the day, intraday volatility in bear markets finds both bulls and bears carried out on stretchers in epic numbers.