Is The Rally Losing Its Mojo?
As it pertains to market analysis, volatility is the most substantially underappreciated tool in both trading and economics.
So let's look at a volatility algorithm against the S&P over the past month. If I could blow the chart up large enough to put more data on it, you would see substantially larger volatility spikes during the first few weeks of this rally. Volatility has wained substantially over the past three weeks. In fact, in the first few weeks of this rally, every major push upward was preceded by a substantial volatility spike in the first hour of the day's trading as shown by the green arrows and explained by the green text box. Over the past three weeks we have much weaker volatility as shown by the blue arrows and the explained by the blue text box. The point? Lower volatility often results in upward price discovery failures. (In the first few minutes of today's market, while not on the chart pulled yesterday, volatility has turned lower again.
There are obviously two ways to interpret this data. One, the market is resting before another move higher and, two, the market has very little mojo over the last three weeks but is floating higher for various reasons. Not the least of which is the stabilization afforded Wall Street by Washington. As we have said, the real secret sauce of Wall Street's brilliance is and always has been the Federal Reserve. Without more and more liquidity provided by the Fed or "made up" by Wall Street's phony "innovations", the basis for most of their investment and trading models are completely invalid. And, all of the baloney being used to argue we are at a substantial upward turning point in the economy is nothing more than talking to the hand.
Disregard the lower three blue horizontal lines. They are not relevant.
So let's look at a volatility algorithm against the S&P over the past month. If I could blow the chart up large enough to put more data on it, you would see substantially larger volatility spikes during the first few weeks of this rally. Volatility has wained substantially over the past three weeks. In fact, in the first few weeks of this rally, every major push upward was preceded by a substantial volatility spike in the first hour of the day's trading as shown by the green arrows and explained by the green text box. Over the past three weeks we have much weaker volatility as shown by the blue arrows and the explained by the blue text box. The point? Lower volatility often results in upward price discovery failures. (In the first few minutes of today's market, while not on the chart pulled yesterday, volatility has turned lower again.
There are obviously two ways to interpret this data. One, the market is resting before another move higher and, two, the market has very little mojo over the last three weeks but is floating higher for various reasons. Not the least of which is the stabilization afforded Wall Street by Washington. As we have said, the real secret sauce of Wall Street's brilliance is and always has been the Federal Reserve. Without more and more liquidity provided by the Fed or "made up" by Wall Street's phony "innovations", the basis for most of their investment and trading models are completely invalid. And, all of the baloney being used to argue we are at a substantial upward turning point in the economy is nothing more than talking to the hand.
Disregard the lower three blue horizontal lines. They are not relevant.
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