The Calmest Stock Market In History

by Dana Lyons
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Based on one measure of volatility, the recent period in the stock market has been the calmest of all-time.
In our habitation within the investment-based social media realm, we have noticed a ongoing discussion between market observers related to the present stock rally. On the one hand, there is a loud chorus from folks (likely many of whom are frustrated non-participants in the rally) pointing out the unusual, and perhaps inorganic, nature of the incessant rally. On the other hand, you have the assured (condescending?) reminders from the other side (i.e., folks “killing it” at the moment) that an upward trajectory is the “normal” course of action for stocks, historically speaking. So which contingent is correct? They both are, to an extent.
Yes, it has been far more typical for stocks to rise than fall over the past 100-plus years. Thus, we should not be surprised by a rally, even in the face of elevated valuations, sentiment, etc. However, an unwillingness to acknowledge the noteworthy, even historic, nature of the current rally, would be an indication of either willful denial or potentially harmful ignorance.
This week, we take a look at some of the ways in which our current rally is truly unique from a broad historical basis. Today, we note the historically placid behavior by the Dow Jones Industrial Average (DJIA), even as it enjoys its interminable ascent. Because, according to at least one measure of volatility, we are witnessing the calmest market in the history of the DJIA.
The metric is called “Average True Range” and it more accurately measures the greater magnitude of price movement between high to low or from high/low to the close of the previous period. In this case, we are using weekly data on the DJIA and averaging it or the past 21 weeks (a popular period for ATR display).
Historically (going back to the start of our daily data), the average 21-week ATR in the DJIA is about 3.5%. Readings below 1.8% have been exceedingly rare, occurring less than 3% of the time over the last 100-plus years (see the chart below). Those readings truly represent historic extremes in terms of lack of movement in the DJIA. Current readings, however, make those periods seem like roller-coasters.
For instance, one recent reading of the 21-week ATR came in at just 1.32%. That is the tightest ATR on record going back more than 100 years.

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Many previous low ATR readings occurred during tight, flat markets. What makes recent readings most noteworthy is the fact that there has been movement in the market – it’s just all been basically to the upside. The fact that ATR is setting record lows reveals just how little downside there has been in stocks recently, i.e., next to none.