Gavekal Capital: Daily Range & Stock Prices

Thursday, January 16, 2014

Daily Range & Stock Prices

One of the ways we measure the behavior of the market is by calculating the daily range the S&P 500. To do this measure the spread between the daily intraday high and low as a percent of the index.  So, for instance, if the daily point spread between high and low was 2pts and the index was at 100, the daily spread would be 2%.

Often the really emotional phase of buying or selling occurs before the low/high in prices.  We saw this very clearly for example in 2008/2009, when the daily point spread peaked at 9.5% in October 2008, a month before the interim low in November 2008 and roughly five months before the ultimate low in March 2009.

On December 30, 2012, the daily point spread hit an all-time low (our records go back 25 years) of .31%. This is a smaller spread than witnessed at the peak in 2007.  At good lows, the daily spread should exceed 3%.  This is one more indicator in a long list that suggests a high level of enthusiasm for stocks currently.