Volatility and noise | stockbee


Volatility and noise

Market continues to be volatile and the 65 days ratio continues to be firmly in negative territory. While the volatility continues the market is essentially at stalemate for last 6-7 days. It is neither going down or going up but on day to day basis there is lot of volatility. Because much of volatility is being driven by unwinding of positions or forced selling due to losses or margin calls, there is some amount of randomness to it. many moves in individual stocks are illogical on day to day basis. Some good quality stocks are going down and some junk is rising. Selling to raise cash is concentrated in good quality stocks, while short covering is concentrated in junk stocks. That is creating a tricky market for traders with long term horizon.

While the market is volatile, there is lot of noise in the environment. There are number of views, editorials and other opinions and judgments being passed around by various market participants and market observers. Much of it is misinformation or propaganda. This is all noise. It will take six months or year for us to understand what actually happened. What you read currently is mostly speculation and gossip by motivated players. Much of what is being passed on as erudite commentary will prove to be far from the actual truth once the details about the crisis and panic come out. Remember all you are reading as of now is from the outsiders perspective. The insiders who really were in thick of the things and who really managed and gained or lost billions have not yet spoken.

The outsiders who are commenting are flying lot of kites. Some are failed hedge fund managers or marginal players in the industry , who never managed large pools of money, they are obviously tooting their drum. Some are publicity whores, who are constant presence on CNBC, WSJ, Barron's or Bloomberg and pretend to offer erudite opinion on every topic. Some are perma bears who are gloating because after predicting doom and gloom for several years day in and day out, finally for few hours they are partially right.

Lot of this noise is self contradictory and not based on logic. Lot of it is pure emotion and jealousy. From a trading point of view all such noise is of no use. The markets were due for correction. They are correcting currently. There have been corrections before this in this rally. But overall there have been higher highs and market has kept its uptrend intact. So as far as I am concerned sticking to methodology is more critical than getting swayed by noise.


James said...

some people see a reversal pattern forming on the Dow. If true, it could mean the most important correction of the year is yet to come.
Wait and see in cash is the best you can do unless your trading horizon is ... one day.

levy13 said...

pradeep - on the market monitor what are the minimums for price & volume to determine the # of stocks up/ down 25% in 65 days? Obviously you must weed out penny stocks , how do you do this?