Mixed signals in today’s market go beyond what we discussed yesterday, which were economic reports, and can often be drilled down to volume and volatility. This can be a mixed bag at times but rarely can a “triple lindy” happen: no volume, no volatility, and an ever-rising market.
Some times the market can experience low volume and because of this, volatility can often increase due to the lack of “size” to stop the moves. Consider the 1/2-day holiday trade where we witness a one-way move on no volume. It’s immediately chalked up as a rare holiday event but is understandable because of the lack of orders.
On the flip side, it is possible to see very high volume trades that go nowhere. Admittedly, this doesn’t happen often but is usually coupled with an extremely low volatility market – as if the market has no worries in the world and thus the size in the order book grows to 3, 4, 5 times larger than normal. What’s certainly more normal is to see this large volume drive the market in one direction for quite a while.
What’s odd, or “mixed signals” if you like, is when all of this happens on the same day or worse: day, after day, after day.
As you have surely read or heard on television this week is that the S&P500 has made continuously new record highs. What’s odd, however, is the total silence from most pundits on the utter complacency in the market. Said another way – there is no volume, with less-than-no-volatility and yet, the markets march on to new record highs on a daily basis.
During the S&Ps recent tiny 4% correction, volume increased in the futures to about a daily average of 1.7 million trades. The volatility certainly increased as well, which was is normal. To be sure, this is not a mixed signal.
During the slow grind to all-time highs, however, volume decreased with each daily record close. Moreover, volatility also decreased. So putting all three together would have been looked at as an overvalued level; however, in the world of global central planning this is not the case. Indeed, the mixed signals continue.
But it’s not just me who says this; Art Cashin said the following about this extended odd situation.
“Unfortunately, history gives us a kind of muted picture of it, that if you have high volume, you get follow-through very easily.
If you have low volume and you go into September, we’ve only had big carry-through a few times,”
This is very true Art, but the difference makers now are the FOMC, BOE, ECB, BOJ, and the PBOC. “Free markets” are simply not allowed.