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Charting The -1.000 Correlation Between Stock Prices And Volume
In our day and age, when implied correlation is approaching 1 with each passing day, and when nuanced relationships are ignored, as every correlation somehow immediately becomes causation only to be invalidated, chewed out and left for dead, there is one certain and virtually guaranteed statistical relationship left, that not only persists day after day but has now become its own self-fulfilling prophecy. We speak of course of the (inverse) correlation between stock prices and volume: i.e., "volume up, stocks down; volume down, stocks up." Rinse, repeat, over and over and over. Rarely has this correlation been as pronounced (although we have been discussing it for well over a year) as over the past 12 weeks. Behold.
What this means is that any distributions only occur to the downside, and that the second retail gets suckered into stocks once again, for whatever reason, the selling pressure will again materialize as the algo decides to take advantage of the "sidelined" money and be a better seller into every bid.
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The U.S.equity market throws another victory party however it was anemically attended by the bulls. CNBC and their band of hallucinogenic mushroom eating pundits routinely ignore party attendance given the level trading volume. July 26, 2010 was another great day for the mushroom munchers as the S and P 500 closed above its 200 day moving average. This psychological (shroom influenced) level was exceeded on the 7th lowest trading volume since 4/1/2010.
There have been 80 trading days since 4/1/10 and 5 of the top 10 lowest trading volume days have occurred in July 2010. The top two lowest trading volume days also occured in July (July 12th and July 9th).
Since Ben Bernanke 's "unusually uncertain" comments on July 21st, the S and P 500 has launched 45.42 points (4.2%) in 3 trading days or 19.5 hours of trading. This 3 day launch of the S and P 500 occurred during the 7th, 14th and 17th lowest trading volume days since 4/1/10.
Imagine the equity market launch if Ben Bernanke was certain about his green shoots. Maybe if CNBC sent one of their coffee mugs filled with shrooms to Ben, he too would attend the party.
Vigilant Grandpa will sit down and grab a beer now..
Hi, thanks for posting this information and, if possible, please continue to do so.
Bear (please don't hug me, but nothing personal) and Sisy: Thank you both. This is science and statistics: We can seek additional information, examine it for real, do our own analysis on the raw, public data, and confirm Bear's view, dispute it, characterize it, and come to our own conclusions.
Opinion: yep, after the analysis. Kinda why I like Rosie's style.
So, Bear +1 and please continue.
Perhaps we can do same with AGW data? Oh, I forgot, those original data were lost, but only the QA'd data were saved. Feynman rolls in his grave.
- Ned
Keep in mind that Grandpa (hug or not) opts not to BS when using the left brain as that would be like telling one's grandchild 1 + 1 =3 and since I do not work for the government...
Best to all the rest of this week as this is one crazy "market" and New_Meat....I too like Rosie's style. Call it like it is and let everyone come to their own conclusion.
LOL. Nice work, Grandpa. Isn't volume the heaviest in September/October?
Good info. Would like to add that the total volume isn't out of the ordinary for July/Summer time, but the action of the volume is.
And I am still loving the "Profit With Cramer" sidebar adds that are now showing up on Zero Hedge. Just awesome.
Congratulations! You've been approved to start trading with Jim Cramer.
Tyler, I'm weighing the cost/benefit (my cost/ZH benefit) of clicking. Is it worth my/our while to go through the click-through behavior? (or for my Brit friends behaviour--two nations separated by a common language). I'm thinking that if b/e is > 0.0001/click for 10 sec of my time, well, that is free money for allcon.
- Ned
looks like a pump.
Please remember Fed's 1st commandment
- do not indulge in conspiracy theory
Big Ben
Volume? Pffff! Mine goes to 11!
Makes me wonder though...Prices are set at the margin, but there's no follow through. It's like the primer is going off, only to find no powder in the shell...or something like that.
Nigel Tufnel: [on what he would do if he couldn't be a rock star] Well, I suppose I could, uh, work in a shop of some kind, or... or do, uh, freelance, uh, selling of some sort of, uh, product. You know...
Marty DiBergi: A salesman?
Nigel Tufnel: A salesman, like maybe in a, uh, haberdasher, or maybe like a, uh, um... a chapeau shop or something. You know, like, "Would you... what size do you wear, sir?" And then you answer me.
Marty DiBergi: Uh... seven and a quarter.
Nigel Tufnel: "I think we have that." See, something like that I could do.
Marty DiBergi: Yeah... you think you'd be happy doing something like-...
Nigel Tufnel: "No; we're all out. Do you wear black?" See, that sort of thing I think I could probably... muster up.
Marty DiBergi: Do you think you'd be happy doing that?
Nigel Tufnel: Well, I don't know - wh-wh-... what're the hours?
What is considered high volume and what is considered low?
High is higher than low and low is lower than average but only sometimes. Could also be the other way around...........it's too complicated and you won't understand it.
On different time frames with different volumetrics you can argue the opposite, of course there is a time frame and an indicator for both sides of any argument.
sorry TD, but IMHO, the retail guy is not coming back. Most baby boomers have been burned 2 times very large in the last decade(tech bubble and credit collapse). These people have to retire and i think they are done with this ponzi stock market.
My generation, I am 30, already know the stock market is a scam. Most of my freinds are not in the business as me, but will tell me "that the stock market is a giant casino". As well, most people in my generation and younger are dead broke, aka student loans, as well as prices for houses that have gone up 5 fold since our parents where buying houses 20-30 years ago. Yet income really has been flat for like 10 years. How is my generation gonna plow money into stocks.
As well, my generation have seen 2 crashes, no 18 year bull market.
Why would a 30 something with a decent job, but a lot of debt plow money into this ponzi market?
Oh they'll be back through 401K. First they legislated it, then they enticed you through company match (remember the whole "leaving money on the table shit?") and soon it will be mandatory. You heard it first here.
Exactly, if I lose my company match, no more contributions
First you need a job. It is kind of hard to contribute when your income is $0.
Check out the babe at New School who has presented to Congress about "assuring" that retirement assets will "be there" despite the market. I'll be back with the G woman's name, but Argentina did all of the income seizure. Killing the Argies.
But the Gov't has the money.
Don'tcha know.
- Ned
Results of google '"new school" argentina retirement testimony'
and get:
USA: Proposals to Confiscate Workers’ Personal Retirement Accounts
http://www.globalresearch.ca/index.php?context=va&aid=11031
Next up: Obama wants your retirement money
http://www.wnd.com/index.php?pageId=123024
etc.
- Ned
Given the rise of access to advanced trade execution tools (think VWAP targets) that can be had off-the-shelf by any buy-side institution, I tend to believe that the stronger this particular correlation gets, the more evidence it is of institutional selling.
The 'good' vwap sell algos will allot some cash to try to bid up price if the order is big enough and then dump the actual order when they are sufficiently high enough, gives u a great vwap on the trade.
But TD is basically saying the same thing.
So what happens when "dumb money" get hold of these tools?
"Dumb money" doesn't have the money to allocate to create trades that can create this behavior in the first place. If they do have that much cash they probably aren't that dumb.
On the contrary. The dumb money is the markets source of liquidity. I don't know this for a fact but I'm inclined to bet that there is more public money than institutional money in the market.
Note that smart money is defined as company insiders, market makers and those in advantageous positions.
Ok I see your point, agree on market makers, but company insiders don't really qualify in this time frame context.
There is no way to know who are the major participants on a given day, I'm just saying this volume behavior would correlate with that thesis.
Just to add, there are so many "trade triangle" traders out there, they add to the rationale of the market, regardless of fundamentals. This makes it harder to predict when using reason.
Let's say they cannot get the tools.
But even now, they can get the volume. The only way to overwhelm the market is volume. Right? Volume on either side of a stock dictates price.
What if a group of ZHers started making co-ordinated moves? And spread the word.
Could a trickle become a flood? Enough to move the market?
Interesting thought experiment at the very least.
ORI
http://aadivaahan.wordpress.com
Of course this fits hand in glove with massive outflows from mutual funds.
http://www.zerohedge.com/article/11th-sequential-and-massive-equity-outflow-reignites-speculation-market-terminally-broken
And how much volume is "real time" trades vs reporting of trades as required by NYSE or other regulations and done in an earlier time frame? It seems to me the volume spikes are reported trades (pre-arranged, crosses, or some othe bs), not real time, how else can you out of the blue spike the volume?
jump fuck the algos on volume....................and then off to the races..................
We should create an open source ES manipulation algo sponsored by ZH. As this post clearly shows you don't need any specific amount of volume to move price. All you need is enough parties willing to take the price up or down at a fast enough pace so that everyone else agrees to follow. You just need enough of ammo (cash) and highly co-ordinated movements on both sides of the trade.
Advanced futures shops already do this in 'thin' markets where they just trade with themselves in the range of 3 ticks, buy 10 contracts at tick 1 then have yourself lift the offer to tick 2, then you again will hit the offer buying 1 or 2 contracts , raise to tick 3 hit the offer with another 3 see if any one wants to raise if not dump the 10 from tick 1 into at worst the bid which is now tick 2. 10 - 3(contracts had at tick 3) = 7 ticks. Do this at the speed of an i7 in whatever instrument qualifies and you get the drift.
So a distributed peer to peer open source futures algo could definitely work. I think.
ZH is clearly started helping the community with his correlation stat-arb trades.
we should take it to the next level.
yeah old school. when you hear traders yell 'gap sell' see thin volume and know that retail investors bought stocks at marked up distribution...you hit the sell button.
no conspiracy here just reality, smart money v's dumb money. since everyone can trade from their bathroom now. there is a lot of dumb money out there.
life is cruel get used to it.
Funny, I said that this morning(now yesterday), it worked.
"...the second retail gets suckered into stocks once again,..."
Retail investor? That was funny TD. Everyone knowz retail investorz went extinct long ago.
Since 1999, when the DJIA first hit 10,000 we've spent almost all of our time either going up a bubble or falling off one, only to end up right where we started. By DOW 10,000 Apple, Google, Microsoft, Intel, the internet, every type of financial innovation, wireless internet, satellite navigation, and almost every other thing we take for granted had already been priced into the market. In fact, we've bee firmly lodged in tiny trading range since then. Lost decade? I don't think so, it's already been a lost decade, we are looking at 2 lost decades...as a direct result of 2 bubbles. Here's a look at how this decade plays out in trading days: There have been 2,848 trading days since the DJIA first crossed 10,000 on 3/29/09 . Since then it's been below 9K 426 days, or 15% of the time, it's been above 11K 779 days, or 27% of the time, it's been between 9K - 11K for 1,643 days or 58% of the time. Meanwhile, your 401k money has been buying on all those days, when in reality it would have only made sense to purchase on days when the DOW was below 9K or about 426 opportunities to get stocks at a good price. In other words, you had ample opportunity to purchase stocks on a more reasonable basis, than not. So why would you mindlessly purchase stocks each month?
Problem is I am a sell and hold kind of guy (I often hold for 2 hours) ... worked well for me ... since 2000, I am up $85,000 while paying about $300,000 in commissions (commodities only ES, GC, S, EC, and CL)
good stuff.
Agreed.
Your faith in the market is becoming weak.
actually, it's tough to kick joe 6 pack around anymore when it comes to being the dumb money in the market. roughly 10% of the population owns 90% of the market equity. (grant me some poetic license on the numbers - they're close enough for gubbermit work) my question is this. which of the top 10% of the beautiful people represent the dumb money? which brings another thought. since joe 6 pack is not in this crazy market does he represent the smart money? i know, i know - he doesn't have any. but at least his shekels aren't in the market.
LT--a minor victory today--John Kerry, who served in Veetnam, actually has agreed to pay MA taxes on his new yacht! go figure
- Ned
I believe his actual term was "promptly" pay his tax on something he aquired 6 months ago ;-)
After the Mass. Senator was photographed twice on his yacht in Mass. waters...which he dock's in RI to avoid the tax on a yacht docked in Mass...that he bought in New Zealand instead of a Mass. ship yard...via an LLC in Pittsburgh that his wife is the largest owner of as she is the widow of a billionaire...LOL.
John Forbes Kerry a war legend in his own mind and fanciful male gigilo...is there a plainer example of the inbreeding festering into an oozing boil on the body politic? I can't think of one.
nmewn-JFK may be the most successful serial gigilo in the world. Or as a local radio guy says "spending money from his second wife's first husband's trust fund." Price of ketchup up in the futures market.
And he claimed that Mamma T is paying plenty of income taxes to PA.
I'll post link of upcoming Boston Herald opinion piece.
- Ned
he agreed to pay taxes on his swift boat. i'll never forget his campaign rhetoric to do Iraq better.
dumb money buys stocks on multiples with huge margin leverage. which means for every smart money sell on a stock the dumbs buy x2, or 3 etc etc. to cover large leverage/margin calls. dumbs are always buying (try and cover losses) if you look at the dow and s&p500 we are not seeing mega spikes, when there are, it's sell. basically the indices are moving sideways, this may occur for years as brokerage firms tighten risk buys, and sell on gaps and hope dumb cash buys then sell again...ad infinitum. everyone is a gambler and you can trade options, FX, warrants, stocks on the iphone4.
the japan FSA are trying to curb the retail investors, force them to have high cash margins.
which only provides backdrop to the Minksy melt up. Sometime soon, Ben Bernanke will say, I offer 36000 dollars for one share of the Dow Jone Industrial Average, and someone on the other side, will agree to it, (of course) because the other 999,999 shares he holds automatically rise in value. Bob Prechter has always said this from a bearish perspective, it only takes one bid and one ask to make a market, assuming there is no bid. He forget to assume the opposite.
too close to maybe! current reality sucks
Stuff you dont see on lamestream media.
Here is a correlation, the chubby guy on info wars said in obam.. that we would be sucked in and they would drop the bottom out again, well that brought me to here, but I'm listening. All I have heard is the same thing, If you buy into the magic, well I hear it burns. And gratefull, the minsky melt up is my fear, and Pretcher's perspective is from history that was backed by GOLD, we dont have that today, we have the printing press. No hedge is the trouble, we dont know the rules of the game as it is being played.
*Cough* we have a problem here Tyler. Retail, consisting mostly of the baby boom generation aren't stupid enough to enter this ponzi scheme before retirement, the younger generation are busy buying iphones with borrowed money and the people in between are paying of credit card debts. The individual has left the building.
been to a casino lately?
Exactly ... Vegas is the new Wall Street baby!
A scatter plot of stock price vs volume along with a linear r^2 would be far more informative and convincing.
These price/volume posts are the least convincing of all. Love most of the stuff, but this Tyler needs to cool it.
actually they're dead on
So what you're saying is the market itself is a contrarian indicator? o_O;
how is the euro correlation now.
Tyler you should create some of your own indicators. ZH Indicator for short term buy and sell signals. That would be sweeet!
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