The Biggest Change Since 2018

Quant traders, I’ve got a confession.  When the pundits say, “This is the longest stretch since…” I groan. 

Do the “since” stats have any meaning?  “We’ve had the longest stretch of consecutive gains for stocks since (fill in the blank).”  The most down days in a row since (blank).  Pick the statistic.

Okay, with that qualifier, we’ve had the longest stretch for Broad Sentiment between 5.0-5.99 since the summer of 2018. 

Go ahead and laugh!  I did too.  You users of EDGE know that Broad Sentiment is our risk-management tool, a way to see waxing and waning Demand and Supply in US stocks.  Broad Sentiment has been at least 5.0 on the ten-point scale, but not over 6.0, for 21 straight days.

That ties the mark set Jul 21-Aug 21, 2018.  The only longer period that I can find in the EDGE data set back to mid-2017 was Oct 16-Dec 1, 2017, 34 days of above-average bliss.

Were either of those meaningful?  Well, maybe. 

The Jul-Aug 2018 period preceded the bear market (barely, as intraday in late December the market dropped 20% but was officially down 19.5%) of 2018 that came in two waves, one in October, the second in December that year.  And 2017 was just an epic year for positive conditions, until it ended in a large pileup in Feb 2018.

I’ll give you one more.  Short volume (Supply, the Reg SHO Rule 201 data set) marketwide has now fallen below the 200-day average for the first time in a long while.  At 51%, it drips a drop below 51.2%, the 200-day read. 

There IS something important to know here.  We’re talking about Demand/Supply trends.  This is the essence of EDGE. It’s what the entire platform is about. 

Demand has been fine but tepid for a record post-Pandemic stretch. Money isn’t flooding into equities. It’s diffusing like scent from a candle. It’s entropy, expanding to fill the available space. Moving, maybe, from order to disorder. 

The Supply side is the reason for gains. I say gains but the S&P 500 is slightly lower now than it was Sep 18.  Declining Supply will support the market. But not indefinitely. 

Tuesday is the end of the quarter. 

Small trade-size. Small gains. Small price-moves. 

What causes these conditions? Sure, fractional trades. But bigger are automated trading systems. Machines.  If the aim of most orders in the stock market is a tenth of a penny per share with risk of loss near zero, you get a marketplace that looks like this one.

Is there anything wrong with that?  Well, yes. Machines aren’t motivated by what’s observable. Machines run calculations until the math stops working. Hard to say when that may happen. 

But I can tell you this: Demand is barely positive.  Supply has fallen for ten days. That rarely happens and one more day matches the longest period in the past year. Now, maybe we get a burst of Demand to conclude the quarter.  If not, this record-setting run between 5-6 is going to end. 

And unless there’s a surge of new money for the new month and quarter, we might see the worst stretch in a long time for stocks.  But who knows?  It’s math, and the math has no emotion. 

PS – For more, attend the free live EDGE Demo this week!