Many global commodity, energy and equities markets have recently experienced 50%+ price moves. After periods of extreme volatility the market volatility usually declines sharply as price moves revert to the long term mean or average.
For example, the S&P 500 Index experienced a 50% decline during the severe 2000 – 2003 bear market. The S&P 500 Index bottomed out on March 11th 2003 and finished 2003 with a positive 26.3% return. Volatility decreased sharply after 2003 as the S&P 500 Index price moves reverted to the historical mean. In 2004 the S&P 500 Index advanced 9.0% and in 2005 the index advanced 3.0%.
We are following a similar pattern in 2009. After a 56% price decline, the S&P 500 Index bottomed on March 9th 2009 and advanced 23.4% in 2009. If the S&P 500 Index follows a similar price pattern to the 2003 - 2005 period, the volatility should decrease in 2010 and 2011 with below average price moves as the index reverts to the mean.