I simply had to share this meme with my readers today. Seriously funny stuff. As Homer Simpson (The Simpsons) once said, “Its funny because its true!”.
Certainly, Trumps Tweets do seem to be throwing the markets around quite a bit lately. Seriously, sometimes I feel he needs an editor to walk beside him and filter his ever-flow brain fluctuations. Must he say everything that comes to his mind?!?
Below is a chart of the SPX. At the bottom of the chart is an indicator called the “Average True Range” (ATR). All this indicator does is measure the range from close to close, then averaged over a certain period of days. The default lookback is similar to Wilder’s RSI (14 days). I chose to look back over 21 days as a fair representation of month by month volatility. As you will see on the chart below, I’ve taken a 3-year daily chart of the SPX with its 21-day trailing ATR .
Notice the pancake flat ATR of the late 2016-2017 period. The market was going up on (literally) record-low volatility. In fact, it was unprecedented. Well, like all such events suggesting “now its different” – they come to an end. And end they did. Since 2018 began, the average trading range (daily movements) has increased significantly.
Perhaps I am drawing a false relationship between historic Trump-Tweeting and the markets. This is just an exercise of curiosity of my own. Shoot this down if you wish. I have no solid proof beyond the chart I found on the internet tracking his Tweets – and its not as current as I’d hoped to find. But it does look like his Tweeting increased in 2018 (coinciding with the trade talks coming on strongly at that point). And that does seem to coincide with an increase in the Average True Range of daily stock movement in the second half of 2018. Here’s the chart from Goldman Sachs that doesn’t take us into 2019, but its all I could find. The VIX is plotted at the top, the Tweets are the blue line at the bottom:
Conclusion…if there is any
The ATR got into the 140 zone in early 2018, then 180 range by late 2018. Both times, those peaks lead to a stock market bottom and eventual rally. Volatility was obviously creating some sort of washout (capitulation) behavior. Perhaps we should watch this indicator with one eye on a level in those higher ranges, and the other eye on Trumps Tweeting behavior. This might give us a clue as to if and when the market starts a new leg up.
Don’t forget to register early for the MoneyShow. I’m presenting on September 20 at 4:15Pm on something a little different. I’ll talk about trading capitulation candidates–higher risk/return plays. I’m looking forward to this talk! Here is a link to register, and find out more about my talk