Market Montage

Unlike the herky jerky move off the June lows where 3-7 days of gains would immediately be followed by 3-7 days of losses taking back 50-66% of the previous move up, the tone has changed substantially in August.  After a "gap and go" day Friday August 3rd as market participant's "read between the lines" of Draghi's press conference comments, the market has consolidated that day's move with sideways action.   This is much more like the performance in January-March of this year.  Recall upside moves can be "unhealthy" just as downside moves can be – when the action is violent as it was in April-July – it marks indecision and the random moves do not signify health.  Also almost all the gains in some time frames come on news and overnight gaps, which is not exactly healthy either.  A low volatility environment is far more constructive, even when there are moves down within that atmosphere. …

I can't recall a period in the past few years when the market has traded in such a tiny band for so long.  Perhaps there has been a similar string, but off the top of the head – can't recall when.  This is now day 9, and in the previous 8 sessions the S&P 500 has traded within a <1.5% band in total.  And if you exclude a week ago Monday the band is even tighter.

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An interesting graph from one of the people on twitter I follow @hertcapital below.  While the S&P 500 is basing a stone's throw away from yearly highs, the breadth of participation is not near levels seen early this year, or during other intermediate pushes up to highs during early 2010 and then during the QE2 rally of latter 2010 through early 2011.   The top chart is the % of S&P 500 stocks over the 50 day moving average (overlaid with the S&P 500), and the bottom chart is the % of S&P 500 stocks over the 150 day moving average (also overlaid with the S&P 500). …