The reason that "Aunt Minnies" are notable is because they do have relatively narrow bells, so we can't simply ignore their implications. For that reason, I continue to urge that investors carefully consider their risk exposures here. If you follow a specific investment discipline, even if it is a consistent buy-and-hold approach, please ignore my views and stick to your discipline. But if you are carrying a lot of market exposure basically because the market has been going up over the past few quarters, and you are close enough to needing the funds that a substantial loss would materially affect your future plans, then your risk exposure is inappropriate, and it might be a good idea to make adjustments while we're still only a moderate distance from recent highs.
Finally, as I've noted before, I tend to get particularly concerned when the market begins to exhibit extremely large fluctuations at ten-minute intervals. This sort of increasing "micro-volatility" is troublesome, particularly when in the context of a leadership reversal coming off of overvalued, overbought, overbullish extremes. The last time we observed similar internal dispersion coupled with a leadership reversal was at the 2007 market peak.
As I noted in the July, 30 2007 comment (Market Internals Go Negative), "This is much like what happens when a substance goes through a “phase transition,” for example, from a gas to a liquid or vice versa. Portions of the material begin to act distinctly, as if the particles are choosing between the two phases, and as the transition approaches its “critical point,” you start to observe larger clusters as one phase takes precedence and the particles that have “made a choice” affect their neighbors. You also observe fast oscillations between order and disorder in the remaining particles. So a phase transition features internal dispersion followed by leadership reversal. My impression is that this analogy also extends to the market's tendency to experience increasing volatility at 5-10 minute intervals prior to major declines."
The following chart (from Dietmar Saupe in Barnsley, the Science of Fractal Images) offers a nice illustration of how the same general pattern can feature different levels of what we can call "micro-volatility." The top panels look like what we're starting to see in intraday activity.
Suffice it to say that at present, the conditional expected return distribution for stocks is hostile enough for me to repeatedly urge investors to examine their risks. Please, ignore my views if you're following a clear and disciplined investment strategy, but be certain that you can tolerate risk - especially with funds that will be required over a relatively short horizon.
