We had a friend at Merrill who kept long-term market charts.
They were pretty effective at showing market highs and lows, an X Ray of market trends of supply and demand.
Supply (net selling) drives prices lower while Demand (net buying) drives prices higher. So simple it is easy to forget as we get caught up. Recently volume has been going lower on upticks, and higher on downticks, suggesting Demand may be drying up and Supply increasing.
But most of us may be tone deaf to these market subtleties, or even think they may not matter.
With all the central planning and government guarantees, it might seem to some that demand and supply no longer work in the free markets, but that is not the case for the long-term. Markets have been around longer than the Federal Reserve and Treasury Secretaries and Presidents.
Every now and then, my friend would get mad at his charts for not working.
They showed the market diverging down, but nothing was happening in the market. Usually, that was the calm before the next market storm.
Lately, the market has been going down with VIX, the implied volatility index of Standard & Poors’ 500 options, a divergence.
The market usually goes down with higher volatility.
Normally, the two are at opposite poles, as VIX is a measure of expected market risk.
The higher the VIX, the higher the expected market risk.
The lower the VIX, the lower the expected market risk.
Market volatility generally falls as markets rise, and rises as markets fall, a fairly reliable inverse trend relationship.
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