Chart of the Day – Changing Market Structure

by Enis June 6, 2012 6:41 am • Commentary

Nothing has stood out to me more about the last 3 years than the changing nature of stock price action.  Sometimes it’s hard to explain, but I know it’s changed, especially as an options trader who is on the lookout for exceptional situations.

Today’s chart offers good evidence of this shift.  The data miners at Bespoke posted yesterday that XOM had been down for the 7th straight day yesterday.  It got me thinking, how often has that happened in the last 10 years, a period during which XOM has consistently been one of the top 3 companies in the world by market cap.

The streaks of XOM down 7 straight days are circled in red in this 10 year chart of XOM:

There have been 7 instances in the past 10 years where XOM was down at least 7 straight days.  To my point about changing market structure, 5 of the 7 have occurred since the March 2009 market low.

Now, one could make the argument that since XOM had a very strong bull run from 2002 to 2008, it should not be surprising that we did not have many streaks of 7 down days in a row.  But what’s incredible to me is that XOM did not have one single streak of 7 down days in a row during its entire bear move in 2008.  In contrast, XOM is up about 40% from its July 2010 lows, but has had 3 streaks.  Incredibly, we’ve had 2 in the past month.

My simple takeaway is that the market is much more streaky than it used to be, with up streaks and down streaks occurring more frequently than they used to across the whole market (with XOM just the example to illustrate the point).  There are many potential explanations for this, but regardless of what is causing it, it’s important to be aware of the phenomenon so we don’t take historical precedents as cold, hard facts.  It’s a changing market out there.