Small daily moves partly rea­son for more than 20-year low hit on CBOE Volatil­ity in­dex

New Straits Times - - Business -

AS the strong­est earn­ings sea­son since 2011 draws to a close, and with the S&P 500 and Nasdaq Com­pos­ite hov­er­ing near record highs, the big­gest con­cern for some mar­ket an­a­lysts is, well, the lack of con­cern.

The largest daily move on the S&P 500 in three weeks was 0.4 per cent. The small daily moves are partly the rea­son for a more than 20-year clos­ing low hit this week on the CBOE Volatil­ity in­dex, a mea­sure of in­vestor anx­i­ety.

“Most of what you’ll find that is out­right neg­a­tive will have to do with sen­ti­ment,” said Marc Pado, pres­i­dent at in San Francisco.

“Peo­ple worried about the mar­ket on a tech­ni­cal ba­sis are worried be­cause there is too much com­pla­cency or op­ti­mism, but not on an in­di­ca­tion that there is some kind of top.”

The S&P 500 posted record clos­ing highs twice this week, but both were lower than the in­tra­day high set March 1, just be­low 2,401.

The in­tra­day record high set on Tues­day, near 2,404, doesn’t sig­nal a break­out from the re­sis­tance level set 11 weeks ago.

Pre­cisely be­cause of the side­ways move, mo­men­tum has not mir­rored what was seen in early March.

The 14-day mo­men­tum mea­sure of the S&P peaked this year on March 1. On Fri­day it closed at its weak­est level in three weeks.

“The big­ger risk now (to the stock mar­ket) would be over­bought con­di­tions, even more over­seas than in the United States,” said Katie Stock­ton, chief tech­ni­cal strate­gist at BTIG.

The Nasdaq Com­pos­ite, which closed on Fri­day four per cent above its March 1 close and set in­tra­day and clos­ing records, was show­ing a par­tic­u­larly damn­ing pat­tern in terms of breadth.

The 50-day av­er­age of ad­vanc­ing names on Nasdaq peaked this year in mid-Jan­uary and is in a clear trend lower. It hit its low­est level this year on May 5, and the spread with the 50-day av­er­age of de­clin­ers has been in and out of neg­a­tive ter­ri­tory since March.

Wan­ing breadth sug­gests the mar­ket ad­vances on less than solid ground as fewer and fewer stocks par­tic­i­pate to the up­side.

On the S&P 500 the 50-day ad­vancers av­er­age is at low­est level since the US presidential elec­tion.

How­ever, with the in­dex trad­ing ba­si­cally side­ways since the March record, the sig­nal can be mis­lead­ing.

The case is even darker for the 30-com­po­nent Dow in­dus­tri­als, where the 50-day av­er­age of ad­vancers is also near the low­est level since Novem­ber.

Ap­ple Inc alone is re­spon­si­ble for 25 per cent of the Dow’s yearto-date ad­vance, even if the in­dex is not mar­ket-cap weighted.

There’s more bad news for Dow fol­low­ers. The Dow Trans­port Av­er­age, which peaked with the in­dus­tri­als on March 1, is more than six per cent be­low its high, while the in­dus­tri­als are just one per cent be­low their record.

A record on the in­dus­tri­als with­out the con­fir­ma­tion of the trans­ports would be another bad omen for stocks. Tim­ing can be blunt, but there was di­ver­gence present be­tween these two av­er­ages at ma­jor tops in 2000, 2007 and 2015. Reuters


The case is darker for the 30-com­po­nent Dow in­dus­tri­als, where 50-day av­er­age of ad­vancers is near low­est level since Novem­ber.

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