October 30th, 2005
It’s truly amazing how one’s perspective on future market direction is biased by the current day’s action, especially on triple-digit days (DJ30, that is). First, there was a 128 point move on Wednesday, October 19; all the talking heads called it a “follow-through” day as defined by Willian O’Neill. However, there was plenty of disappointment when it was more than erased the next day by a 133 point drop. The talking heads looked like they had jumped the gun. Then last Thursday’s 115 point drop to 10230, pointing to highly probable extrapolations below 10000 was followed by Friday’s 165 point reversal to 10403 (interestingly, 90% of the last Friday’s in October has produced the biggest move of the year for several decades).
To try to get a get a better handle on the volatility and to help check any emotional trading on my part, I recapped daily moves of the DJ30 , either positive or negative, of .9% and greater since March 2004 and came up with the following surprise frequency distribution:
|Month||# of +/- changes greater than 0.9%|
No wonder this summer has been so boring. Since May, there were very few trading days with moves of 0.9% or more (“big-move” days). Other than this past month, the last time there were big-move days, was last April (with 8 days) which began a 5.7% increase through July 28. In August and October 2004, there were 6 “big-move” days each signaling an 11.24% move through December 28.
“Big-move” days reflect the tug of war waged between the bulls and bears. Based on similar recent volatility, it’s easy to infer a high probability the recent action also signals a significant move to year-end. But which way?
Let’s turn to a long-term view of the DJ30 for some clues:
…. or, in addition to Wilmington Trust (WL) with a 3.19% yield mentioned here previously, there’s Boston Private Financial Holding (BPFH):
…… and Central Pacific Financial Corp (CPF):