3/4/11 The ADD Market

Hulbert: The ADD Market newSubmitted by 2nd_ave (5297 comments) on Fri, 03/04/2011 - 06:53 #80846
http://tinyurl.com/4njvn4c

CHAPEL HILL, N.C. (MarketWatch) — I used to joke that on Wall Street, the long term lasted just from lunch until dinner.

Now I don’t think it’s a joke. The reaction times on Wall Street have become so compressed that market moves that used to take several weeks, if not months, often are now exhausted in just a couple of days.

Clearly, we’re all succumbing to attention deficit disorder.

In my column on Tuesday of this week, I had hinted that reaction times appeared to have markedly shortened. Confirmation of this comes from an extensive study of my stock market and gold sentiment indices — the Hulbert Stock Newsletter Sentiment Index (HSNSI) and the Hulbert Gold Newsletter Sentiment Index (HGNSI). The study, which focused on daily readings of those indices back to 1985, more than 25 years ago, searched for correlations between different index levels and the markets’ subsequent returns. ( Read my Tuesday column.)

Prior to the last decade, for example, the strongest correlations were at the three-month horizon. Correlations with subsequent one-month performance, though statistically significant, were somewhat weaker. At the two-week horizon there was no statistically significant correlation at all.

In recent years, in contrast, the situation has reversed itself dramatically. Now there is no statistically significant correlation with the three-month horizon. And not only have correlations at the two-week horizon become statistically significant, they now even exceed those that prevail at the one-month horizon.

I've attributed my own rapid bull->bear->bull sentiment shifts to an acquired taste for ST trading strategies. But apparently it's only an expected response to an ADD market.