McClellan Chart In Focus. Volumetility. Trading volume equals commissions, or at least it used to before Schwab led the race to the bottom – By Tom McClellan

Chart In Focus

Brokerage firms have been bemoaning the declining amounts of share volume versus a few years ago.  Trading volume equals commissions, or at least it used to before Schwab led the race to the bottom and went to zero commissions on online retail trades.  The other discount brokers followed suit.

Economists will tell us that if you lower the price of something, people will consume more of it.  But so far, that is not working out for trading volume with zero commissions.  Instead, trading volume is more dependent on a different factor – – volatility. 

This week’s chart compares the VIX Index to a 21-day moving average of NYSE share volume.  The two plots are not identical, but they come pretty close.  So the lesson is that if you are a stock broker, or an exchange, and you wanted to see trading volume go up to boost commissions, you should try to arrange for the stock market to undergo increased volatility.  Good luck with that diabolical plan. 

But for those who seek higher trading volume, you can take heart from the message of this next chart, showing that the VIX tends to follow in the footsteps of short term interest rates:

T-Bills 2-years forward and VIX Index

The VIX Index is obviously a lot noisier than the 3-month T-Bill yield, but we can still see the same dance steps in the way that each of them trends.  Using the 2-year offset in this chart, that foretells a peak of volatility around March 2021, 2 years after the March 2019 peak in interest rates.  And we can expect generally rising levels for the VIX between now and then.

After March 2021, the “short VIX” trade which worked really great (until XIV blew up) should come back and be a thing again.  But it will be hard to make money with that bet between now and March 2021.

Tom McClellan
Editor, The McClellan Market Report

May 03, 2019

A New VIX Indicator (That’s Really Not All That New)
Jun 02, 2017

When Not To Go Short Volatility
Sep 10, 2010

Year-End VIX Plunge Coming


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About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.