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In 2011, The S&P Moved 877 Times For Every Point Of Change
We have previously described the change in market structure post the mid-year USA ratings downgrade as the impossible was suddenly made possible. Nowhere is this more evident than in the huge difference in cumulative distance traveled by the S&P 500. Considering close-to-close changes from the beginning of the year, we see that the average shift of 6 points per day (pre-USA-downgrade) has more than doubled post the downgrade to 12.6 points per day. The S&P 500 has traveled, close-to-close only, an incredible 3193 points on the year while from the 12/31/10 close, the index itself has moved a mere 3.64 points. At this rate, should the US be downgraded another notch, we will see 25 point per day close-to-close changes and the broken market that we described post-downgrade will become more of a farce than it already is.
Of course, the distance traveled will tend to infinity should we choose smaller and smaller time intervals (think about measuring the distance around the coast of Britain with a smaller and smaller ruler) but we remind readers of Benoit Mandelbrot's work on fractals and the use of the Hurst exponent - the S&P's behavior on a short-term basis is becoming more and more anti-persistent (less persistent than simple randomness or more chaotic). If the market had been up in the previous period, it is more likely (than random) that it will be down in the next period and vice versa.
One way of considering the change is simply that market-time is speeding up - which makes sense when one considers the speed of response of the average algo-/correlation-driven robot running the show now on the back of the sporadic intervention of government's all too visible hand. Anecdotally, we see moves that used to be week/month now occur in hours/days.
So in summary - the S&P 500 has traveled 877 times further than its actual gain/loss on the year!
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Going nowhere fast.
At least we won't be late when we don't get there.
This can all be attributed to the Santa Rally starting early????
This can largely be attributed to the mad speculation in the wholey unethical and immoral CDS market. For goodness sakes, Italy now has one of the most economically knowledgable leaders in the world in charge! There credit rating is improving by the day. I'm inceasing my exposure to their debt with whatever I possibly can. The regulators just need to crack down on the greedy hedge funds and speculators making a good country look bad.
Volatility Bitchez!
Seems like the only ones who made any money this year made them in the form of commissions rather than cap gains. Whoopee! higher taxes on those commissions than cap gains, our debt problems are solved!
......more of a farce than it already is.
Is that even possible?
Simple, the normal course of action (bonds and SPX tanking) is being prevented by all out efforts by Bernanke and the PPT . I have never seen a more ridiculous action than August to now since the beginning of the crisis in 2007.
Tyler ... if i had something to say - you deserved the investing community nobel price!
You have done so much for us all ... I wish you and yours a merry and peaceful X-MAS. And may you and your site live for another century!
!!! Unbelieveable great job you do !!!
Price instabeelatee!
This is price churning by HFT to suck as much money as possible out of the market.
any other similar examples of this and following year consequences?
Or is the the beginning of the 1960s and 70s stangancy type market with some volatility thrown in?
stagnatility?
Volination?
FEMAcampation.
ohh.. what can i say . It's drunken master technique by POV Bernake
Think of all the margin calls (and associated borrowing/liquidation costs) and transaction fees extracted. Huge transfer with no movement in the underlying.
Buy and hold is dead, dollar cost averaging is dead. Just get the market direction right and trade away. Fundamentals, charts, PE ratios, book value.. all out the window.
The market is dead!
Take your money home for the holidays and buy shiny things!
Market direction?
There isn't any. That's the point of this article.
You be better off grabbing a trash bag and picking ANY direction and just start walking and collecting returnable cans instead of picking market direction unless you are picking it daily...which is what I do
"I don't beleive in your institutions." -NIN from Burn
http://www.youtube.com/watch?v=XdhKnAw6VZw
"the S&P 500 has traveled 877 times further than its actual gain/loss on the year!"
So much for 'Efficient Market' theories.
Yeah Baby...!!!
Bring on the volatility.
In 2011, we are up 15+% on an AUM of $100mm.
I hope you are right, Tyler.
I cannot wait for the increase in volatility for 2012.
This is not a "broken market"... this is fun.
If you can't handle the vol, then stay out of the kitchen...!
How nice for you.
Good luck holding onto that. I would cash out while you can.
It's a very, very manipulated market. If you still have any exposure to this BS then I don't know what to tell you. It's not like there was no warning.
Free markets are a fantasy and relic. Intervention is now normal and predictable in the system. Couple that with media, agency, and government reporting and this is the kind of market you end up with. A system and not a market. Predictably broken and retail investors frightened away froom the market for likely a decade or more.
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Actually Tyler, the real increase in vol is hidden in the daily range (hi-lo).
If you aggregate the daily range figures for the entire year, then the result would be even more pronounced, vis-a-vis the past.
It's all good...!
Good for you.
For now.
The market has always been a rigged casino. The charts for 2012 are already neatly stacked on somebody's desk at the Fed.
A fractal S&P500 is converging to the boundary of a Mandelbrot set.
I wrtoe a post a few months ago about this. That if you look at a second to second chart now, it looks like a daily chart from a few years ago. Everything has sped up, including inflation. ten years of normal inflation has been baked into one month due to the massive manipulation of the commodity market. More corn contracts are traded in one day now than used to be traded over an entire decade.
3200 close to close points is nothing comapered to the massive intraday moves. How many 10% swings have we had since August? The S&P probably moved over 10,000 points intraday since August. Retail investors and mutual funds end the year where they started, nanosecond market manipulators walk away with billions.
You can probably use this metric on any stock or commodity, LULU probably moved over $500 since August. I'd bet the price of oil has probably moved close to $1000 per barrel. All this for no reason other than to line the pockets of speculators. Sure you can say the entire market is speculative and it needs to be to work, but that is only on the basis that all market speculation is equal.
It's an algo hft paradise, but the powers that be don't want you to think these benificial "liquidity providers have anything to do with it. There is no way (other than andrew haldne) that we will decide the market structure is broken. Not when there is money to be made by keeping it broken
Just a huge consolidation before the next big leg up in this new bull market.
Same thing happened during most of 1994, except it was even worse.
The run off the December 1994 lows was absolutely monsterous.
Yes, because the global economic condition is just like it was in 1994, only better. (sarc)