Thursday, September 2, 2010

Why Bother with Individual Stocks in the Perfectly Correlated Market?

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Scanning through some charts the past 24 hours it has struck me how so many begin to look nearly identical.  In fact, if they were overlaid onto the S&P 500 - adjusting for extra beta in individual stocks - they also look identical to the S&P 500.

Just a random example - replace S&P 1040 with CRUS $15 over the past week and you would not know what chart you are looking at.  I picked that name randomly, 45 of the 50 charts I reviewed are almost identical in nature.




I heard this morning on CNBC that 30% of trading sessions the past 'while' have been 90% days.  That's remarkable, every 3rd session 90% of the stocks moving in unison on one direction.  Long time readers will know this is something I've highlighted as a changing characteristic of the market versus how it used to be even 5 years ago, not to mention 10.  You still used to have 90% days back in the day but it was rare... now 'student body left' is dominant as HAL9000 pushes everything in the same direction.  Yesterday was a 98% day - I can respect that, because the market was up 3%.  Today, in a market up 0.5% every single stock but 1 in my portfolio is up.   That's nonsense.

This is why we are being held at gunpoint and forced to state at a S&P 500 chart each and every day, trying to figure out where it goes in the next 1-5 days, or 1-5 hours.  Because almost every risk vehicle on earth will go in the same direction.  Why bother reading about a company's prospects, or digging through a 10K or 10Q.  It's almost useless now.  That's a healthy market?

[Jun 29, 2010: Correlations Among Asset Classes Reach Ever Higher Extremes as HAL9000 Algos Dominate Life]  
[July 8, 2010: Hedge Funds "Frozen in Headlights" as BiPolar Market with 1:1 Correlation in All Things Not Named U.S. Treasuries Causes Confusion
 [Jun 30, 2009: Bloomberg - Correlation Among Asset Classes Highest Ever

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