Resource sector volatility has risen dramatically in the last few weeks

Resource sector volatility has risen dramatically in the last few weeks. Rising volatility is usually a sign to stay away from the sector. The measure illustrated in the chart is based on the small resources share price index. Changes in the direction of volatility are typically signs of a change in the direction of the market. The increased volatility has coincided with a slump in the market which has taken prices to below their previous cyclically low points in June 2013 and during the worst of the global financial crisis in 2008. In the normal course, as the volatility indicator reaches its peak, sector prices should also be stabilising before starting to recover. The average duration of these adjustments implies market weakness through the remainder of December although late December and early January is also the seasonally strongest time of the year for the sector (with a positive outcome for 14 consecutive years). That might be put to the test this year.