This is an abridged version of our Daily Report.
Stocks have swung more than 1.5 standard deviations on more than half the days during the past two months. That’s a big change from September when it happened only once.
When stocks change from a low-volatility regime to a high one, it has preceded mostly higher prices longer-term. There wasn’t a lot of evidence that the change to a higher level of extreme daily price changes preceded significant changes in the market environment.
More new lows
Even while the S&P 500 is holding above its lows from the past year, many securities have sunk to a lower low, enough so that 52-week lows on the NYSE are the highest in two years.
They accounted for more than 21% of all issues on Thursday. This has been a short-term negative in the past.
The S&P 500 fund, SPY, gapped down more than 1%, lost more than 2% during the day and eclipsed its lowest close over the past six months, but reversed to close almost positive on the day. This looks nice on a chart, but the other 8 times it’s happened, SPY built on its gains only 2 times over the next two weeks. Single-day reversal patterns are notoriously fickle.
Except for small-caps
The IWM fund had a more dramatic reversal, falling below its lowest close of the past year before reversing. Of the 6 other times it’s done so, it continued to rally over the next week all 6 times averaging 3.3%.
The post titled Volatility Regime Change; More New Lows was originally published as on SentimenTrader.com on 2018-12-07.
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