Tuesday, June 24, 2008
There seems to be a phenomenon in the financial news/entertainment sphere (a region that Macro Man in some way inhabits via this space) that, to paraphrase Field of Dreams, "if you whack it, they will come." In other words, capitulative lows in equities tend to be accompanied by capitulative spikes in traffic.
Macro Man has commented on the utility of tracking traffic figures in the past, though he's hardly the only one. The charts below provide an example of the "traffic signaling capitulation" phenomenon. Consider the "Bear Stearns bottom" put in on St. Patrick's Day of this year, marked with the arrow below. Not only did it mark the nadir of the S&P 500 for the year, but was followed by a rather sharp rally in the ensuing week (and indeed couple of months.)
Comparing the chart above with Macro Man's own daily visitor figures (from Google Analytics) is instructive. As you can see, the blow-off low generated a surge in traffic well in excess of anything observed a few weeks on either side.
Which brings us to today. Last week's price action in equities was pretty bad, to say the least. Over the weekend, Barry Ritholtz observed that traffic at his site was not indicative of a captiulative low; in fact, it went down ever as stocks did. Macro Man can report that he's observed the same thing, with traffic edging lower in line with the market. While it is tempting to put down the decline in traffic down to the onset of school holidays in the US; however, a quick geographic study reveals that traffic declined across just about all major countries, including those (like the UK) where the kids are still in school.
What are we to take from this? Well it seems as if despite the horrible market price action, no one (or at least no one who reads this blog) is panicking. And until panic sets in, the most likely direction for equities is down, down, down.