Friday, October 21, 2011

"Risk On", "Risk Off" Days Surging the Past 4 Years

We've been talking a lot the past few years about the massive correlations in the market, along with 'student body left' (or student body right) trading.  The media likes to call this risk on, risk off - where people either buy everything or sell everything, en masse - lemming like.   A popular measure in the market is "90% days" - i.e. when 90% of stocks move in the same direction.

This chart from the WSJ Marketbeat blog shows how we've exploded on this measure during the past four years.  Each of them has seen above 30 such sessions!  In a year where there are about 255 trading sessions, that's almost 14% of the trading days when everything is moving en masse.  1 out of 7 - that's remarkable.  You can see how this compares to the earlier part of the decade.  Part of this is the growing influence of HFT and EFTs, and of course the massive macro news and interventions by central bankers and government are also creating outsized effects.

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