MAGNITUDE & DIRECTION
In mathematics, systems of linear equations are used to construct complex spans that can shift across multiple dimensions. In their most basic form, each construct is made up of a series of vectors which are basically line segments. A vector, by definition, has two components - magnitude and direction.
On Friday, the S&P closed down for the day - which by itself is not particularly noteworthy, except for the fact that it had also closed down in each of the previous 8 days as well. This was the first time this has happened since 1980... a somewhat historic move in terms of duration.
Since September, I've noted on this blog that the market was signaling an increased likelihood of a correction so the direction of the move comes as no surprise. What has been surprising, however, is the magnitude of a move breaking below support levels... or should I say, the lack thereof.
Going back to August of last year, the market has had two noteworthy corrections prior to this one - three if you count the fallout from Brexit which was more of an unforeseen systemic shock; but both of the technical corrections displayed the typical eruptions of volatility and volume that are associated with down moves.
For the sake of context, I'm defining a 'correction' as a breakout to the downside (breakdown) below levels of support with widening negative gaps in moving averages.
Here's the August 2015 move...
Here's last January's move...
By contrast, here's the S&P's most recent breakdown...
The differences are plain to see.
Another interesting part of the market's activity over the last couple of weeks has been the US Dollar. The greenback has lost its mojo after previously breaking out to new highs only to give it all back in spite of the Fed giving a wink and a nod to another December rate hike. A weakening dollar is usually a welcome sign by equities but not so in this environment.
The only thing to conclude here is that the market is simply gearing up for the US Presidential election and is pricing in the possibility of what could be viewed as an unfavorable outcome. The price of vol has spiked ahead of Tuesday's decision so it will be interesting to see how things play out come Wednesday.
In linear algebra, the magnitude - and even direction - of a vector can be changed by applying what's known as a scalar multiplier. In the context of domestic equity markets, the election appears to be the scalar multiple that will determine whether the magnitude and direction of this vector is augmented or reversed.
In mathematics, systems of linear equations are used to construct complex spans that can shift across multiple dimensions. In their most basic form, each construct is made up of a series of vectors which are basically line segments. A vector, by definition, has two components - magnitude and direction.
On Friday, the S&P closed down for the day - which by itself is not particularly noteworthy, except for the fact that it had also closed down in each of the previous 8 days as well. This was the first time this has happened since 1980... a somewhat historic move in terms of duration.
Since September, I've noted on this blog that the market was signaling an increased likelihood of a correction so the direction of the move comes as no surprise. What has been surprising, however, is the magnitude of a move breaking below support levels... or should I say, the lack thereof.
Going back to August of last year, the market has had two noteworthy corrections prior to this one - three if you count the fallout from Brexit which was more of an unforeseen systemic shock; but both of the technical corrections displayed the typical eruptions of volatility and volume that are associated with down moves.
For the sake of context, I'm defining a 'correction' as a breakout to the downside (breakdown) below levels of support with widening negative gaps in moving averages.
Here's the August 2015 move...
Here's last January's move...
By contrast, here's the S&P's most recent breakdown...
The differences are plain to see.
Another interesting part of the market's activity over the last couple of weeks has been the US Dollar. The greenback has lost its mojo after previously breaking out to new highs only to give it all back in spite of the Fed giving a wink and a nod to another December rate hike. A weakening dollar is usually a welcome sign by equities but not so in this environment.
The only thing to conclude here is that the market is simply gearing up for the US Presidential election and is pricing in the possibility of what could be viewed as an unfavorable outcome. The price of vol has spiked ahead of Tuesday's decision so it will be interesting to see how things play out come Wednesday.
In linear algebra, the magnitude - and even direction - of a vector can be changed by applying what's known as a scalar multiplier. In the context of domestic equity markets, the election appears to be the scalar multiple that will determine whether the magnitude and direction of this vector is augmented or reversed.
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