Thursday, September 2, 2010

Why Bother with Individual Stocks in the Perfectly Correlated Market?

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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