The volatility of the stock market has been astonishing. In a short time we’ve witnessed a cluster of 4 days where the market volume was 90% or higher. This along with the multitude of Lowry 90-90 days has been unprecedented in recent history.
Here’s a very long term chart of the advance decline numbers for the NYSE:
And this is not just a characteristic of the NYSE due to some peculiar shift in the listing of non-operating common stock securities. The Nasdaq data confirms the above chart, showing a slow, continuous uptick in volatility.
This volatility, in turn, makes market analysis extremely difficult. You can’t simply rely on the same tools to chart a course. On the one hand, you can’t fully rely on the indicators as you would in the past, and on the other hand, you don’t have anything much better to go by, do you?
Bear market rallies or “secondary reactions” in Dow Theory parlance, are by their definition violent and surprising in their force. So far, this one has taken us about 20% higher from the most recent low (March 9th 2009). The stock market has seen more intense bounces but you’d have to go back quite a ways to find it.
More importantly, the chart above hints that there is an inherent change in the make up of the market. For some reason or reasons, volatility as measured by the rush of stocks in one direction and then in another, is increasing. So if we rely on indicators that measure this market breadth, then we could very easily mistake this secular uptick in volatility for a meaningful signal.
One thing is clear, grasshopper, this is not your grandfather’s stock market.
Enjoyed this? Don't miss the next one, grab the feed or