Volume and Volatility: How the “Slope of Hope” Is Failing the Market

This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.

On Saturday around noon, I plopped onto the couch with my dogs and grabbed the clicker to flip through the endless channels.

Liquidity moves markets!

Follow the money. Find the profits! 

Eventually, I wound up on a just-started airing of “Ghostbusters,” my least favorite Bill Murray movie. (And now many of you are mad at me. For what it’s worth, “Caddyshack” is my favorite.)

Try Lee Adler's Technical Trader risk free for 90 days!  Subscribe before March 19 and get 20% off the regular price. Follow the money. Find the profits!

In an odd bit of cosmic fate, a quote from the movie described exactly what I want to see from the market before I’m ready to buy bullish positions by the armfuls again.

First, let me make this known: I don’t like winter. It’s cold outside in Cincinnati, and my Saturday mornings and afternoons are suddenly vacant as college football takes a break between the regular season and bowl season.

New Trade Opportunity TONIGHT: Since late September, Chris Johnson has delivered a perfect 20-0 record in closed trades with the help of his new Infrared Index – all while major indexes tanked. Learn how to get in

Of course, the annual Army-Navy Game was played this past Saturday. However, that was just one lonely football game floating in the space previously occupied by dozens of games, totaling nearly one hundred hours of football. But I digress…

This turn of events led me to re-watching “Ghostbusters” until said Army-Navy game started. Toward the end of the movie, the ghost-fighting team is in City Hall, trying to explain to the mayor that the city is headed toward disaster: fire and brimstone, forty years of darkness, the dead rising, et cetera.

Finishing off the colorful language to describe the peril, Peter Venkman (Murray) says, “… human sacrifice, dogs and cats living together, mass hysteria!”

And that’s exactly what the market needs right now.

“Wait, wait, wait, CJ, you can’t mean that seriously, right?”

But I do, and here’s why…

Lack of Interest Plus Blind Faith Equals No Speculation

In my last write-up, I explained how the market has been stuck in this arrhythmia of big swings with little to no control. All year, we’ve seen new all-time highs followed closely by year-to-date erasing pullbacks.

It’s enough to give you whiplash if you watch it too closely. But we’re experiencing this momentum for two very key reasons: low volume and low volatility.

Previously, I mentioned a lack of interest in the market. After a couple weeks, traders are out, unwilling to commit, which is creating the breakneck selling sprees we’ve been seeing. But let me add some context to this sentiment…

I use the cumulative average volumes for the  SPDR S&P 500 ETF (NYSE Arca: SPY), NASDAQ QQQ ETF (NASDAQ: QQQ), and iShares Russell 2000 ETF (IWM) as a proxy for “interest” in the market.

Where Will You Stand One Year from Today? Tom Gentile just unleashed the biggest finding of his career… and now, he wants to show you exactly how to get the opportunity at millionaire status in just 12 months. Your shot at over $15,000 in weekly windfalls starts today. Take a look.

In November, volume on those major ETFs was more than 32% lower than the month of October. (In case you’re wondering, so far, December’s volume isn’t looking too hot, either.)

And that’s despite the fact that November was the S&P 500’s ($INX) best-performing month since August. Simply put, traders aren’t interested. And this is leading to low-volume, high-volatility swings, which can be incredibly dangerous to uninformed traders.

For the most part, the market’s money managers – the traders who spend their days gunslinging for returns by buying and selling securities at high frequencies – have run to the sidelines. The market’s Wild West days are over for now.

But the ones holding on against all hope that the market just flat-out stinks right now are just investors holding onto blind faith. They think this market has no way to go but up, and they’re wrong. In fact, more than anything else, this mentality is the market’s worst enemy right now.

This is why the “slope of hope” is failing the market. Those blind-faith investors aren’t enough to keep this whole thing afloat forever. Plus, as one of my Ten Commandments of Trading states, “Stocks are driven higher by speculation, not fundamentals.”

Right now, the lack of interest in the market is telling us that there is little to no speculative activity. And the blind-faith investors aren’t getting speculative. They’re keeping their money in the market, but they’re getting defensive as we see some cash flow into healthcare and utilities.

What we need is for the market to climb a “wall of worry.” But there remains work to be done before we find a true bottom. And right now, it appears as though the majority of investors are willing to just sit around and wait.

Michael Santoli from CNBC has it nailed: These market declines are just “too organized.”

We need “human sacrifice, dogs and cats living together, mass hysteria!”

We haven’t gotten that this time around. The CBOE Volatility Index (^VIX) has hit readings at or just above 25 a few times over the last week, but nothing more than that. This indicates that investors have yet to freak out about the constant sell-offs.

Conversely, during the correction in February, the VIX hit 50 when the S&P 500 dropped 12%. But this time around, as the S&P 500 has dropped 10 to 12% on multiple occasions from its all-time high on Sept. 21, we’ve only seen VIX readings that are half the February high.

Only then, when we see that mass market hysteria and a seemingly insurmountable wall of worry, will we know that it’s time to buy bullish positions by the armfuls again.

 

To get full access to all Money Morning content, click here

About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

Disclaimer: © 2018 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.

The post Volume and Volatility: How the “Slope of Hope” Is Failing the Market appeared first on Money Morning – We Make Investing Profitable.

Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. I may receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.