Neartermed volatility up on “TTT” (Trumps Trade Tweets)

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!”.

I agree.

 

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.

 

MoneyShow 

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

7 Comments

  • Keith

    Probably the best information I have read on how to make any sense of this Twitter Volatility Indicator. LOL

    thanks

    Reply
  • Interesting that market affecting activities appear more serious during August, September and October.

    Reply
  • I’m not sure that Trump tweets everything that comes to his mind absent of any filters – though that seems to be what everyone thinks. A claim by Jeffrey Goldberg, editor-in-chief of The Atlantic, is that “The Trump Doctrine of foreign policy” has three components: “No friends, no enemies” (the US should not be part of any alliance); permanent destabilization creates American advantage (keeping allies and adversaries perpetually off-balance benefits the US); and the US does not need to apologize for anything the US has done. (This comes from John Ivison’s new book, Trudeau: The Education of a Prime Minister, p 257) In my opinion, these three components do seem to square with Trump’s approach not just to foreign policy, but domestic as well (just look at the state of chaos among the democrats). And it seems to me, a lot of Trump’s tweets are aimed at cultivating a permanent state of destabilization. So it seems to me, Trump tweets confusion on purpose; and the media is happy to jump on it and add further confusion on top of the confusion in their analysis. My two cents…

    Reply
  • Taking the stance that nothing is good or bad but our thinking makes it so I offer the following excerpt from an analysis of Trump by Daniel Greenfield…

    To understand Trump better, it is important to look closely at how he operates. An excellent analysis was recently written by Daniel Greenfield. It provides clear insights into the posture that Trump has always taken to get the deal he wants. Greenfield asserts that Trump follows five basic rules, and this applies to his negotiations on foreign policy:

    Act, Don’t React

    Try Everything

    Chaos is Power

    Never Show Your Hand

    Don’t Be Afraid to be the Bad Guy[1]

    Trump always prefers to make the first move, giving others no choice but to respond. He counts on others’ need for a return to stability to create opportunities that he can exploit and is not afraid to fail and try something different. Unlike most leaders, he doesn’t care about looking like the bad guy.Bullying, lying, fake news and made-up data are all fair game. Anything to take the offence and make the other side uncomfortable enough to offer concessions.

    Reply
    • Interesting. Although it seems that China is on the offensive this time–moving today’s markets (Sept 3rd)

      Reply

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