Continuing from my last post, I had another thought on the definition and subsequent analysis of an equity bubble. One calling card of a bubble I forgot to mention yesterday is increased volume. Many site higher than average trading volume in conjunction with unjustifiably high prices in diagnosing a bubble. So, with that in mind, I took a look at market volume (YTD, since I'm not made of time here) to see what trading volume has to say about this supposed bubble.
In short, trade volumes do not seem to be supporting the bubble theory. In fact, volume has actually been a little light in the past few weeks, comparatively speaking. Since October, only 1/3 of trading days had S&P 500 volumes above the 2013 annual average, and both the 200 day and 50 day moving averages have edged below the annual average as well. These results could be less than telling due to a number of factors, including seasonality, holidays, fund rotation, and my overly simplistic analysis. This is further evidenced by NASDAQ volumes showing nearly the exact opposite: days since October with volumes above the YTD average are a whopping 70%, with the 50 day simple moving average crossing above the 200 day and the YTD marks. Could this be due to sector rotation? Rebalancing? Hard to say.
While far from conclusive, I do feel fairly comfortable stating that the volume data do not support defining the current domestic equity market as a bubble. Needless to say, we will keep an eye out for any changes, however I do not expect volumes to pick up dramatically through the end of the year due to the holidays.
No comments:
Post a Comment