Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18
The Value of Bitcoin - 11th Jul 18
America a Nation Built on Lies - 11th Jul 18
China, Asia and Emerging Markets Could Result In Chaos - 11th Jul 18
Bullish Gold Markets in the Big Picture? - 11th Jul 18
A Public Bank for Los Angeles? City Council Puts It to the Voters - 11th Jul 18
Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - 11th Jul 18
Argentina Should Scrap the Peso and Dollarize - 11th Jul 18
Can the Stock Market Close Higher For a Record 10th Year in a Row? - 11th Jul 18
Why Life Insurance Is A Must In Financial Planning - 9th Jul 18
Crude Oil Possibly Setting Up For A Big Downside Move - 9th Jul 18
BREAKING: New Tech Just Unlocked A Trillion Barrels Of Oil - 9th Jul 18
How Trade Wars Penalize Asian Currencies - 9th Jul 18
Another Stock Market Drop Next Week? - 9th Jul 18
Are the Stock Market Bulls Starting to Run? - 9th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

The Stock Market’s “Turnover Bubble” Isn’t as Bad as it Sounds

Stock-Markets / Stock Markets 2018 Jul 06, 2018 - 01:11 PM GMT

By: Troy_Bombardia

Stock-Markets

Every time you hear words “speculative behavior” used to describe a bull market in stocks,  you should sit back and look at the data carefully.

  1. “Speculative behavior” is mostly code for “the market has gone up a lot, I’ve missed out on a lot of its gains, and this is a bubble but I don’t know when it will top”. In other words, calling something “speculative behavior” is not useful for making trading decisions. Calling something “a bubble” tells you NOTHING about when the market will top.
  2. Nominal data always looks like “speculative behavior” because inflation causes numbers to go up in the long term.

Some investors are concerned about the increase in the dollar value of shares traded in the S&P 500 (price of stocks * volume)

As the following chart demonstrates, the only times the dollar value of volume was this high ($3 trillion) was near the last 2 bull markets’ peaks. “This is a sign of speculative behavior” they say.

Except when you look closely at the data, you’ll come to 2 very different conclusions:

  1. When the dollar value of volume first became this high (in 1999 and 2006), the bull market in stocks still had 1 year left. You need MULTIPLE quarters of high volume before (i.e. A LOT of speculative behavior) before the bull market can top.
  2. This is a nominal value. It will forever trend higher in the long term because $3 trillion today is not the same thing as $3 trillion 18 years ago.

In fact, CPI is 48% higher today than it was in 1999. This means that $3 trillion today is actually equal $2 trillion in 1999 dollars (inflation-adjusted). Suddenly the “surge in speculation” seems a lot less speculative. Nominal values mean nothing. Real (inflation-adjusted) values are more important.

A better indicator for “speculative behavior” in the stock market is just VOLUME. This ignores the price of stocks. The dollar value of volume will forever trend higher in the long term simply because stock prices trend higher on a multi-decade time frame.

This chart demonstrates that the volume of shares traded on the NYSE has actually declined since 2007.

This chart demonstrates that the volume of shares traded for the S&P 500 has been flat since 2007

This chart demonstrates that the volume of shares traded on the NASDAQ has been flat since 2007.

Volume is a better measure of speculative activity in the stock market than the dollar value of volume. The dollar value of volume is mostly just a function of the stock market’s price.

Right now, volume is not “surging”. This is not a sign of “speculative behavior” in the stock market.

Click here for more market studies

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules