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(6/21/14)
The Implied Volatility in the S&P (VXO) is at an all time
low and is back to where it was in early 2007 and late 1993 (points
A). Meanwhile as you can see volatility the past 30 years has
alternated between periods of high and low values. Currently we have
seen a period of lower volatility the last few years so I would expect a return
back to higher volatility between 2015 and 2020. 
Naturally there is a lot of debate
as to what will happen to the market once the Implied Volatility starts
increasing again. The bullish crowd believes a repeat of the mid to
late 1990's will occur in which both the VXO and S&P 500 increased at the
same time (points b to c). Meanwhile the bearish crowd would
envision a repeat of late 2007 through early 2009 when the VXO rose
substantially as the market sold off (points d to e). Since the
S&P 500 has already risen nearly 1300 points since 2009 I don't think a
repeat of the mid to late 1990's is likely. However with that being
said that doesn't mean a major crash has to occur
either. 
A more likely scenario is that the
market eventually gets stuck in an extended trading range that lasts for several
years like occurred from 1906 through
1924. 
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