I have been asked quite a bit lately if the current volatility and the massive swings in the market on a day-to-day basis have been seen before outside of a bear market, with most using the fall of 2008 as their reference point.
About 10 days ago we looked at the period of time from October 2014 to the spring of 2016. That was surely volatile, although I think the current environment is more volatile than that one was. As I was staring at the charts this weekend I was reminded of the volatility we saw in the post-1987 crash environment. Let me preface this discussion by noting there are not many similarities to 1987, if any, except that we had enjoyed a rather long ride upward followed by a sharp downturn in 1987, which is somewhat similar to the current environment.
Yet when I pulled up the chart of the Dow (apologies but the S&P chart was unavailable) I was struck by some similarities in that from right after the crash (October 1987) and for months thereafter (the blue box ends in February) the DJIA traded in an almost 10% range.
Many who did not live through the crash of 1987 are so keen to point out what a great buying opportunity it was. I would like you to look at this chart of the Dow from early '87 to the end of 1988 and understand how that climb just to fill the gap at 2,200 was torture. It was volatile too. So sure if you look back, hindsight is a wonderful thing but when you lived through constant 10% swings it was gut wrenching.
As for the indicators, two weeks ago I noted that there was no buying interest in the market and that is still the case. The difference is that two weeks ago we were grossly oversold and sentiment was sour as can be.
Now we have some positive indicators but we're not grossly oversold and sentiment is not in the same place either. The black arrow on the Oscillator chart shows where the Oscillator (blue line) was two weeks ago; now it has just pushed downward. It's hard to determine when it will be oversold again.
Anecdotally it seems everyone is bearish. Heck, the put/call ratio on Friday soared up to 117%, the highest reading in about two weeks. Even the ETF put/call ratio which had consistently been under 100% for the last few weeks has finally gone over 100% for two consecutive days. Yet the 10-day moving average of the put/call ratio is at the bottom of the page and turning upward. Two weeks ago that was not the case; it was at the black arrow.
So sure there were fewer stocks making new lows Friday. Sure Nasdaq's breadth using up/down volume instead of the advance/decline line is the biggest surprise as it is nowhere near its low and yet Nasdaq is on the verge of breaking to a new low.
Or I can even note that Nasdaq's TRIN was almost 2 on Friday, the highest reading since August. The two prior high readings were lows in the market.
Typically when we've come down so much we're on the verge of an oversold reading. Typically when we've come down so much and on the verge of breaking support levels the 10-day moving average of the put/call ratio is at the top of the page, not the bottom. Typically at this point, so close to breaking major support on so many charts I would say, let them break, because we'll get panic and we're close to an oversold reading. Yet that is not the case.