Record Lows for 2014 – Volumes and Volatility

Records have been broken in many categories for 2014 so far. Dow Jones Industrial historic highs, S&P 500 record highs 10 times in the past 4 weeks.

The only record lows we are seeing are in … Volumes and … Volatility.

The S&P 500 is on target for volume levels not seen since 1997 and Singapore’s STI is dead on target to a new volume low since the index revamp in 2008.


S&P 500 Volumes
S&P 500 volumes

The current low volumes is accompanied by 2 trends.

  • a sustained lower than normal volatility. The Vix index has been exceptionally unvolatile for the past 3 years.
    Chart : Vix Index 2007-2014
    vix index
  • record amounts of stock buy backs (and central banks buying of stock)
    Chart : S&P Buybacks
    S&P Buy Backs

Low trading volumes in a rising market usually point to a lack of conviction from either environmental uncertainties or from the valuation standpoint.


Low volatility suggests a complacent marketplace that is unprepared for big moves.

High buybacks lead to higher share prices as supply is reduced. Buybacks also indicate that companies are unwilling to invest in say, CAPEX, preferring to enrich shareholders as the alternative.

Perhaps we can speculate that the reason for a complacent marketplace and low volatility is because shareholdings are concentrated in the hands of a few and that the rest of the market is not terribly long in their positions and thus, have no need to hedge for volatility ?

And we can venture to postulate that the trend is sustainable if there is no desire to liquidate positions because there are no bids left at current levels which implies that the status quo will be disrupted if 1. equity owners take profit or 2. when buyers on the side get tired of waiting and decide to rejoin the market.

In record setting markets that 1H2014 will be remembered for, perhaps 2H2014 will be notorious for different reasons. And the best one I can think of will be the end of QE sometime in October if the earnings season in July does not do the trick.

Will we see the 10% correction that CNN and CNBC have been blaring about ?

How is that possible when we are not prepared for it ?

Maybe 5% ?

Taken from last week’s post.

“I am not sure when faith and hope will run out, but I think the curtain call for mid year is also timely reminder of the fabulous rally we have enjoyed since May’s FOMC meeting and a good excuse for a correction has arisen.

S&P500 1 year chart

The S&P has held above 1900 for 2 months now and most analysts (60% according to Investors Intelligence) are bullish for a test of 2,000.

A test of 1900 would get people analysing again without ruffling the central banks’ longs.”