Three Weeks Sideways in Holiday Trading Environment

Submitted by Mark Hanna

Courtesy of MarketMontage. View original post here.

It is quite remarkable how volatile the markets were for months on end late spring through most of the summer, and then once Draghi dusted the markets with pixie dust we all fell asleep.  Volatility has almost completely disappeared in August, as has volume.  It is very much like a Thanksgiving week or Christmas week environment – indeed yesterday was the second lowest volume day of the entire year.   While these low volatility environments are usually in favor of the bulls there has been almost no movement in the major indexes for three weeks.  

The lions share of the gains in August came on August 3rd, the Friday after the Fed and ECB meetings where markets digested Draghi’s comments and inferred something big is coming – even if not immediate.   Since then rumors have focused mostly on a rate band limitation on sovereign debt, with the band perhaps being a secret.   Whatever the case, there was a bit of follow through after the 3rd but the S&P 500 is just a few points above where it closed August 7th.

The NASDAQ has made more progress but that index is now incredibly reliant on one stock that makes up over 13% of its weight.  So we’ll call it NASDAPPLE.  A lot of other sub-sectors have been lagging of late in the tech space, which has been masked by Apple – in fact yesterday was a great example, despite a ~2% increase in its biggest weighting the NASDAQ was barely positive.  That means a lot of other stocks had to be negative to offset the work Apple did.

The Russell 2000 – while more volatile than the S&P 500 is essentially in the same position, just a handful of points above August 7th.

All in all, it’s been a month of consolidating the one day of big gains on August 3rd.   Post Labor day one assumes volume should pick up, as will a lot of events in Europe and the U.S. – but until then it seems the market is on auto pilot.  If Friday’s lows break perhaps the action will heat up a bit.

Speaking of Mr. Draghi he has pulled out of the Jackson Hole symposium citing a lot of work….

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