It is likely that 2016 financial markets will begin with high levels of volatility. Presently VIX is higher than during the strong uptrend years between 2012 and 2014. If we look back at history, higher volatility precedes bearish market declines, such as seen in the years 2000, 2007, 2010 and 2011.

While higher volatility is a warning that markets could very well moving toward a serious drop, it doesn’t mean that a decline will happen right away. A major bear market develops as a process, not as a single event. For now, our cycles are in a mixed direction and we do not have a confirmation of up or down for short-term trading purposes.

What you can expect from rising volatility is markets starting with strong selling in the early session followed by a strong turn around with end of day buying; hence wide daily chop with quick reversals happening in both directions. In the near term tread carefully and expect drastic chops.