This page has been archived and commenting is disabled.
A Snapshot Of Ludicrous Volatility: Since May 1 The S&P Has Travelled 1234 Points Yet Is Unchanged For The Year
Submitted by Contrary Investor
Listening In
To suggest financial markets have been volatile as of late is simply a wild understatement. Although we've certainly seen this type of volatility in terms of percentage moves over short spaces of time in the past, we can't remember when we've last seen this degree of volatility within the context of whipsaw back and forth movement. Although it may sound hard to believe, if one looked only at closing S&P prices and added up the interim high to low and low to high movements of the SPX since literally May 1 of this year, the S&P has traveled 1,233.83 points!!!! More than the entire value of the SPX as of the close the day after Thanksgiving. Now how's that for volatility over a seven month period?
Has this played havoc with fragile human emotions? C'mon. You may remember that we saw many a headline Street soothsayer turn outright bearish at the end of September, lowering equity allocations as well as equity index targets. Speaking of defensive portfolio postures and the chance for the S&P to breach 1000 to the downside. Four short weeks and 186 S&P points to the upside later, giddy strategists and other assorted Street fortune tellers rushed to upgrade equity outlooks literally right on top of the highly anticipated late October Euro bailout plan (which in hindsight has turned out to be neither a bailout nor a plan). We watched in strange amusement as increasing beta exposure recommendations flooded the Street, of course coming after a blistering four week 17% run to the upside in the SPX. The immediate result of these recommendations of the pros? A very quick four week 10% loss in the S&P, as a proxy for equities broadly. It’s never easy, is it? After all, it’s the job of the financial markets to disappoint the greatest number of participants as possible at most all points in time.
Having said all of this, we hope it’s helpful to keep in mind amidst all of the financial market and human emotional volatility of the moment some very long cycle equity market fingerprint character points that have proven themselves more than useful over time. Infallible? Nothing is infallible. These are guideposts. And to be honest, they will come across as incredibly simplistic. For years we have used the relationship of the 10 and 40-week exponential moving averages of the S&P as an important risk management tool. It’s one of many in the toolbox, but its track record over the last few decades has been spot on. When the 10-week EMA crosses down through the 40 week EMA, it’s telling us to sit up and take notice. As you’ll see in the chart below, this has occurred four times in the last 20 years – early 1994, late 2000, late 2007 and a few months ago. You already know the second two dates were incredibly prescient in terms of foreshadowing the character of the longer down cycle to come. These crosses, both on the downside and upside are separated by years, not quarters or months. This is exactly why we personally deem them very useful.
In the spirit of honesty, we temporarily broke below the 40-week EMA in the summer of 2010, directly in front of QE2. Was it QE2 that saved the day for equities in the late summer of 2010? We’ll never know as free market forces were not allowed to play themselves out. But the break was never sustained and correction back to the upside happened within weeks. The 10 week EMA has broken to a level noticeably below the 40 week EMA with the recent break, quite different than last summer's "kiss".
Okay, the reason we wanted to revisit this now is that with the intense equity rally of October, it was starting to look like this most recent downside cross was a huge head fake. But as of this writing, the 10-week EMA remains below the 40-week EMA suggesting a new upside trend of substance has not yet begun. Quite the opposite. And yes, after the 20% 2011 top to bottom move in equities this year that for now ended in early October, more than a number of strategists proclaimed that that we’ve had our bear market cycle and we’re now onto an all new bull market cycle for equities. The fact is that for now no one knows with any certainty.
But as you look at the chart above and specific to our current circumstances, we need to remember that a return of the 10-week EMA to near the 40-week EMA AFTER a major equity cycle top is not the exception, it’s the rule. You can see it happened three times after the 2000 peak and twice after the 2007 equity peak. Are we yet again living through this repetition in human decision-making? You already know the correct answer, time will tell. But for now, the 10 week EMA has again approached the 40 week EMA and has now been repelled to the downside, exactly as we've seen in prior cycle peaks of meaning.
Again, no one indicator can be called the Holy Grail in this wonderful world. For corroboration of message with the indicator above, we’ve historically used a “slower” version of this weekly moving average cross by introducing the 15-week EMA, as opposed to the 10, into the mix. If we get a signal from the 10-40 EMA relationship that is corroborated by the 15-40 EMA relationship, it importantly strengthens and reinforces the message of directional trend. For now it’s telling us there is no new bull trend yet and that risk management remains the primary order of the day. Also important in this corroborative relationship is the fact that the 15 week EMA never came close to "kissing" the 40 week EMA over the last few months. Could an ECB print or QE3 change this? It could change this current message in a heartbeat, exactly as we saw in the late summer of last year, but we’re not there yet, and neither is the ECB or Fed.
Final, but far from exhaustive, indicator of current interest pertaining to the immediacy of the here and now. Although it's just our view of life, the October move in equities was largely reflective of short covering based on the interplay of the TRIN indicator and advancing versus declining volume. What was lacking at the time was a meaningful acceleration in advancing volume. Well, very much tangentially related is the very simple variable that is new highs for equities. We’ve put the following chart together that graphically expresses this concern.
As you look back historically, equity market moves off of major trend lows have come with an explosion in new highs. Within the context of ongoing bull markets, you can see that post corrective periods ending with price bottoms of substance, we also see a very meaningful move higher in the number of new highs registered as the major averages recover. It has been an incredibly consistent pattern. This is a key fingerprint of both newly emerging and/or continuing equity bull markets.
Alternatively, have a look at the late 2007/early 2008 period in the chart below. Equity rallies post the very meaningful 2007 peak never saw a coincidentally meaningful expansion in new highs. (Please be aware that we're using a 12-week moving average of new highs to smooth out what would otherwise seem short term data noise). We even saw this snapback in new highs post the summer 2010 period. As you can see, every post correction equity rally seen over the period covered in the chart below that was to subsequently reveal a continuation of the the bull saw the 12 week moving average of new highs move back to a level of 175 at least. We did not even crack 60 with the latest October rally. Very different than last summer and very different than the prior 2003-2007 bull cycle.
There is one other short-term linkage here. The lack of recovery in new highs in late 2007/early 2008 also corroborated the real world event of a recession. Again, the expansion in new highs post the summer 2010 lows likewise suggested no recession. Exactly as the folks at the ECRI had predicted using their leading indicator data last summer. So here we stand today, we have not seen really any expansion in this moving average of new highs post the late September/early October lows AND the ECRI folks have essentially put their reputations on the line standing firm and unwavering with their forward recession call. We’ll just have to see how it all plays out. Are equities leading the economy via the message of new highs experience? Again, time will tell.
So amidst the 24/7 headline news barrage of the moment and the incessant short term meaningful price volatility that has become a hallmark of the recent market environment, we hope it’s important and helpful in decision making to step back and have an unemotional and disciplined look at what have been very important equity market major trend fingerprint indicators over the last few decades. Guideposts, not Holy Grails. Guideposts deserving of our attention and ongoing monitoring. If equities are about to embark on a new up cycle, as so many strategists suggested just one month ago, all current patterns will reverse, and quick.
»
- 12320 reads
- Printer-friendly version
- Send to friend
- advertisements -
so i guess buy and hold does work............./sarc
Apologies but this is worth the OT.
Interview with Ann Barnhardt where she just lays it all out. You must listen to this.
http://www.financialsense.com/financial-sense-newshour/guest-expert/2011...
Obviously the result of free markets, transparent price discovery, etc, etc.
Applicable to so many things in life right now I find the following words of Hunter S. Thompson to be a condensation of deep understanding, "We had gone in search of the American dream, it had been a lame fuckaround. A waste of time."
lol, I can't understand how such few people don't realize that yeah, you may be flat for the year (as in... NO LONGER in the red).. but your wealth has evaporated by 5% due to rising costs of EVERYTHING.
If you measure buying power strictly in gold, you lost around 30%. Sheep chewing the cud.
i remember that day, i was watching the dollar pop as they announced that the US killed Bin Laden, it was also my birthday...if only i had held on to my EUR shorts
Not me.
Totally stress free, sane, plained off, serene.
Yeah, that's it, I understand the meaning of the word serentiy and know peace.
Happened a few times lately to have had a tourettes moment. Like when standing in a long line at Wal-Mart with my cart full of pepper spray, thinking about markets, the economy, Cramer, Timmah, Hankie "dah bazooka", Benny and the Inklets, the Fucking Clown Show in Europe, whateverthefuckelse and started yelling "Horseshit"
But effected such in a heartfelt lucid manner, sounding like Mr.Ed, the talking horse with that Richard Nixonian blubbering jiggling cheek kicking in from the "r" through the "es" sorta sounding like Willlllllbur.
Horrrrsssseshit.
It's all Horrrrsssseshit.
Thank you for letting me share.
I feel better now.
That was one excellent post. It took me right there behind you in the line in Walmart and I thoroughly enjoyed the whole scene. I'm going to go buy myself some his and hers pepper spray today. The Mrs. will be pleased. Please write of your experiences more often.
Meanwhile another 3 TRILLION gets sucked out of the system...People must be really fricken stupid to keep buying this terd...
Prepare for Ludicrous Speed:
http://www.youtube.com/watch?v=_TMOgrysO_Q&feature=related
The crash of all crashes is right around the corner. History has shown that all big swings happen in Bear Markets.
agreed...it seems imho glaringly obvious from a glance at the charts...coordinated CB intervention that did nothing to address the fundamental problems in the global economy succeeded in ramping the ES to the 1245ish resistance level...i would go so far as to say that we are set up for the final downside of a triple top (or h&s if you prefer) that goes back to 1997...again, just my opinion but i have positioned myself accordingly
i hope you're right because I'm positioned for that too -- problem is that I got in this position last friday morning. I'm actually glad this week's rally happened so quickly though -- less time decay on my puts.
and there, i think, is the rub...the most difficult thing is to have the patience to wait for the big moves...and this, if i am correct, will be the biggest move the markets have ever seen
Well when you have 50 trillion dollars in paper for the housing market and everybody is underwater what do you expect.
Here is what is happening. Beavis Geithner / Spank Paulson are tipping off Hedge fund insiders "which is perfectly legal" about which direction the market is going to go. Computer Algos are going nuts.
Here's the obvious trade strategy for full retard algo market. Up 5 days down 5 days, if you do not receive information from the fed or treasury secretary.
Hank Paulson should be in jail.
Tim Geithner needs to be fired.
Well, I for one love this volatility and the price changes it brings. As a trader, this is heaven.
http://vegasxau.blogspot.com
Horrrrrssseshit
Despite all my rage, I am still just a rat in cage...
http://www.youtube.com/watch?v=V_JmnZgEutU
1234 is the key number
My password
There are those who analyze and there are those who trade the markets.
I guess Robo and Leo were right ... buy the dips and I was right too ... sell the tits ... together we could make a great team
Bearish!
Just like me!
This is worse than in '08... at least then, you knew the trend until Mar '09....
This fucker could break either way, though down is more likely....
Whenever the market 'channels' it breaks out in relation to the length of time in channel ... the next move will be a dozy. Probably a major spike up (maybe 1335) to shake out every single short and then the plunge. Spike and Plunge ... we should call this this market the 'Vollyball Market'
and yet Bernanke is doing everything he can to force baby boomers into equities - which could collapse at any given moment once the PPT is overwhelmed. we're at a surreal point where its dangerous (or a lottery ticket) to hold anything overnight. forget about "investing" long term. i'm genuinely amazed seniors aren't rioting in front of Bernanke's house.
even TIPS are a fraud perpetrated upon seniors. they, prudently, don't want to risk daily 3% swings and the eventual waterfall collapse to fair value, but because CPI is deliberately fraudulent they actually lose money.
Kill the machines
Down, then up, then back down
thats my guess
It just looks like it is going up and down because your inside it. In reality is a moebus strip self perpetuating wealth exctraction system. :)
Möbius
Ty :) tried to fix it but cannot edit at this point for some reason.
Must be the plunge protection team in action. Hard at work.
libertarian86.blogspot.com
ETFs baby
More signs of sickness. Only 25% of all shares traded on NYSE are ever held beyond the close.
this is our brains on fiat, BiCheZ!
You can see it coming: the system can only handle about 6 months without monetary intervention, and needs almost daily rumors of intervention in between. No risks there, right?
that is the EKG of systemic problemos
in slewienomics we call that chart pattern The Dance of D00M
the winning caption entry: wtf?
It's the EKG alright. Cause the EEG shows brain death
that's the flat-line
every $1.5 Tril of QE, we get a volume spasm, but...
...this zombie has been dead for years!
This suggest too me that the inside money has already handed the baton too the general public. Now can anyone predict how this ends?
Just fucking crash and get this over with..it's exhausting watching this...like a movie where the hot blonde just will not take out her tits fast enough!
One day I counted rally and reversals on IWM and it was 65% One day. Omfg
Meanwhile, divergence between equities and the 6-month outlook for the economy keeps diverging.
The market ia no longer a discounting mechanism for future profits. It's now just a barometer for future monetary expansion.
Correction...it is now just a manipulated casino.
There is only one crisis in this, US debt crisis. USA alone is saturating the bond markets with huge debt issuances and that is why there is eurozone debt "crisis". Eurozone nations issue few billions per month while USA puts out 130-150 billion dollars every single month!
Americans cannot continue this much longer before all out debt monetization is the only way. That will lead to inflation skyrocketing and eventually to a crash.
some USD bids coming through vs the KRW other Asian currencies. Slight bearish signal. Too quite, it's all NFP numbers. Rangy nervous markets.
Bad vibes.
It's called "TBTF" manipulation!...
They're scared!...We've got them on the run!
NO PRISONERS!...RIGHT?
Tyler, for a job well done, let me suggest a cigar: Padron '64 ANNIV. Superior (6.5x42)...NOT MADURO
From the non-inflation adjusted high eleven years ago, stocks for the long run, lulz. Boomer pensions are sucking wind big time, as they continue to support stealing from future generations to support their bankrupt welfare state.
Dat dem der's what we old timers call volatility....yuppers. Keep yer powder dry.
@Howard_Beale
You have got to post more, old friend!
jack-a-mole bitchez.
http://www.youtube.com/watch?v=XbxTqR9ck4c
hmm interesting...
US in la la land, Europe is a land of zombies and madmen...now Asia, more so Korea (a mini China - economically) looking like it's about to slide into stagflation based wipeout. I guess hence the USD being bid in Asia
from wires:
0237 GMT [Dow Jones] Despite a November inflation print of 4.2% on year Thursday, above the Bank of Korea's 2.0%-4.0% inflation target range, Credit Suisse says the argument for a BOK rate cut is gaining strength. The outlook for the Korean economy is worsening, it notes; "uncertainty in the external environment has started negatively affecting domestic demand conditions, causing some visible deceleration in investments."
Why stop at 1 year? The S & P has traveled a lot longer in the last decade and gone nowhere.
You can't spell Volatility without Evaporation.
and some more outflows from dear old China:
0251 GMT [Dow Jones] The USD/CNY falls to an early low at 6.3481, tracking a lower fixing, but soon hits its daily upper limit on large dollar demand; the pair has reached this limit for the third straight session. The central parity was set at 6.3310 compared to Thursday's 6.3353. In OTC trade, the USD/CNY has reached the daily upper limit at 6.3627, compared to 6.3635 late Thursday; it may ease to around 6.3600 during the day but is likely to remain close to the limit, says a Shanghai-based Asian bank trader; "it has reached the daily limit quite early after trading started due to companies' large demand for the dollar, which is not just from oil companies. The lower fixing was another dollar buying opportunity for them."
very f*cking bearish signal.
We used to call that a lot of running around, for nothing. It still is. It's the reason that gamblers never get out of the hole.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Very symbolic of the American experience. Driving in circles to get nowhere.
move along, nothing to see here
I guess I will keep buying gold and be boring. If today was the last day of 2011 gold would be up on average 20% again for the 11th year in a row. Maybe one of the nits on CNBC can explain this strange move in the ultimate money! Probably NOT!!
Pack em, rack em and stack em...TEOTWAWKI is right around the corner...if you think otherwise then just keep watching "Dancing with the Stars" and all will be fine!
I guess I will keep buying gold and be boring. If today was the last day of 2011 gold would be up on average 20% again for the 11th year in a row. Maybe one of the nits on CNBC can explain this strange move in the ultimate money! Probably NOT!!
Pack em, rack em and stack em...TEOTWAWKI is right around the corner...if you think otherwise then just keep watching "Dancing with the Stars" and all will be fine!
if ES breaks 1100 that would imo complete another h&s that began forming in 2010...after that it's 800 with plenty of volatility in between...just a technical take but i don't see any positive fundamental data that would change my opinion...
just do straddles and wait. take profits off the table. repaet.
I showed the weekly chart to my 3 year old and had him fill in the rest of the missing "hump." Funny how he drew a straight line down to the right of the chart.
Perfectly natural market manipulation. Other than Tuesday's piece de resistance vis-a-vis global intervention, which send world markets skywards in tandem, the dear "leaders" managed to maintain "decent" market floors during the past 3 months with their bullshit rhetoric alone, along with their frequent but well timed "leaks" of "intentions" through their bought Main Shit Media.
Glossing over all but imminent bank failures of course, especially the ones who if fail could double France's debt X2 in a day, or the fact that actual treaties have to be altered in order for this clusterfuck to even begin to unravel, whether by a "two-part" Eurozone or a Federal (German) Europe which regulates individual post-sovereign economic affairs by setting out targets and penalties for each "state", something which most certainly wont be met with sensible apathy by the future unified serfs.
What's important is to keep the markets looking alive of course, despite resembling a bowl of ice cream made by a brightly coloured array of feces. And if I see one more imbecile "expert" on Bloomberg, like every single tool that has been interviewed for the past 6 months, citing his "macro strategy", or his short term market maneuvering, as if it was some kind of ancient intergalactic secret wisdom, revealed to be nothing but cow shit when hindsight was applied, I will start taking my liquor intravenously.
Say no more:
Traders say it is mostly position squaring ahead of tonight's US non farm payroll data and the weekend although continued weakness in Chinese markets is raising a few eyebrows. The Shanghai Composite is currently trading on its low at 1.4% down down whilst USD/CNY sits stuck at the tops of its trading band.
I think China is rolling over.
Doomsday.
Informative article. Why in the article does it reference a 10 week EMA, but the number in parenthesis says 15 not 10?
This market is going to be crushed. Sh*t NFP number + China going bust = Wall Street panic
0420 GMT [Dow Jones] There is a pause in the USD/CNY over-the-counter trade because of a dollar liquidity squeeze and after the pair hits its daily upper limit due to strong USD demand from companies. "There's unlikely to be any more trades for the rest of the day unless someone sells the dollar," says a Shanghai-based trader at a local bank; "pauses in trading due to dollar liquidity squeezes have happened a few times recently." There could also be a flight to the safe-haven dollar as data from China shows further signs of economic slowdown. The pair is last at 6.3627 at 0222 GMT, its daily upper limit. The central parity was set at 6.3310 compared to Thursday's 6.3353. Offshore, one-year USD/CNY NDFs are up at 6.3860/6.3900 from 6.3810/6.3850 late Thursday
It is a calm year so far, 2011. Some hypes about the euro, but alas, we're still alive and the euro has not collapsed. The dollar neither. Next week the decisive eurosummit will end all hypes and then all ends well. Merry Christmas.
what i wanna know is what will rappers rap about when the economy is in the crapper?