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This Is Not Your Grandfather’s Stock Market at Trader’s Narrative

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:

nyse advance decline long term chart

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.

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4 Responses to “This Is Not Your Grandfather’s Stock Market”  

  1. 1 david

    The market certainly was a lot more volatile the last couple of months, but the chart is only telling you that there are more stocks traded today then ten years ago. The website (facts and figures section) shows that last year shares of 3507 different issuers traded on the NYSE, while in 1990 the number was only 1774. That explains why there are more shares advancing in a rising market and more declinig in a falling.

  2. 2 Mr.Sparkle

    Another interesting post. There was a period in December where the previous 50 sessions had almost 6% average intraday range based on open prices. Truly historic. I haven’t updated my data in the last couple months but that number has come down a bit but I still believe it is up close to 3%. Average historically has been 1.44% for SPX.

  3. 3 Russ Abbott

    Would you explain what you mean by “market volume was 90% or higher”. Market volume was 90% (or higher) than what?


  4. 4 Babak

    david, that’s a valid point but even taking into account the increase in the number of securities trading, there is more volatility today than before. See my response to Mr. Sparkle below:

    Mr. Sparkle, yes, another way would be to look at ATR which would show the same thing.

    Russ, I was referring to the Marty Zweig measure of 9-1 up days in the other post.

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