Financial Advisors

Market Retreats on Lower Volume

The S&P 500 declined -3.37% on Friday. After a +17% rally from the index’s low point in June, through mid-August, volatility reared its ugly head and brought the total number of outlier days (a trading day beyond +/-1.5%) in 2022 to 52, out of 164 trading days. During a normal, low volatility market environment, one would only expect 7 or 8 outlier days to this point in the year. As we all know by now, this is not a low volatility market environment.

Heading into Friday, the S&P 500 had been in Market State 9. Market State 9 is one of Canterbury’s four defined bear Market States. One key characteristic of Market State 9 is that short-term supply & demand indicators are positive, and volatility is high, but declining. Friday’s splash to the market was enough to turn both short-term and volatility indicators negative once again. In other words, the S&P 500 is now in Market State 12, with all indicators being negative. 

The rally experienced over the last two months is a common occurrence in a bear market. Bear markets are emotional, with both large declines and large advances. A sharp decline flushes many investors out of the market. Eventually, there are few investors left to sell. Markets then rally, causing many sideline investors to get a bad case of FOMO, or “fear of missing out.” The advance causes cautious optimism as more participants try to hop in on the upward ride. Eventually, the rally runs out of steam, Lucy pulls the football, and Charlie Brown lands on his back.


Markets were not all negative on Friday. Volume on the S&P 500 stocks was lower than the average volume experienced this year. Volume is the term used for the number of shares traded over a given period, usually a single day. It measures conviction. The lower the volume, the less the confidence in the move. So far in 2022, there have been 164 trading days. Friday’s -3.37% down move on the S&P 500 would be the 5th largest trading day (up or down) this year. However, in terms of volume, Friday’s move ranked 129th (using data provided by Optuma Technical Analysis). While it might have been a large day in terms of percentage moves, it was not a large day shares being traded. In other words, perhaps there is a lack of conviction to the downward swing.

Bear markets often experience higher than average volume.  This makes sense given that there is an increased level of emotion. As a matter of fact, 73% of trading days in 2022 (120 total days) have seen larger volume than the average trading day in 2021. Interestingly enough, the last 12 consecutive days have had less volume than the average trading day in 2021.  Friday’s volume would have been about average in 2021, which was a normal market environment.

Bottom Line

Markets can do all sorts of crazy things during bearish environments. Very few expected to see a large outlier on Friday, just as very few investors, if any, would expect to see a 17% rally over just two months off of the market’s lows. It is cliché, but in bear markets, expect the unexpected.

Our regularly published updates discuss different market characteristics as they are happening. A single, lower volume, large down day, like we saw Friday, is just one small bit of information in the enigma that is the market. We can take this small bit of information and use it to tell a story but know that no investor can manage the market—the market is what it is. We can make observations and adjust our portfolios in a way to maintain consistent and low volatility, regardless to whichever market we are facing, bull or bear.

Right now, we know that many “conservative” investors do not feel like their portfolios are very conservative. These investors characteristically have a mix of both stocks and bonds to balance their portfolio’s diversification. We know that stocks are in a volatile, bear Market State. We also know that both interest rates and inflation have been on the rise. Rising rates have caused bonds to decline. The 7-10 Year Treasury Bond ETF (IEF) is down about -10.5% year-to-date and -17% from its peak in 2020. The long-term treasury bond ETF (TLT) is down -21% year-to-date and -34% from its peak. So much for bonds being a safety blanket from a volatile stock market.

At Canterbury, we are volatility risk managers. We manage portfolios using a method we call “adaptive portfolio strategy.” Rather being subject to whatever the market’s moves may be, we aim to manage our portfolio’s fluctuations by adapting both our portfolio holdings and asset allocation. So far in 2022, our “Canterbury Portfolio Thermostat” has only experienced 6 outlier days, which is in the expected range. Remember, the S&P 500 has seen 52 outliers. Managing a bear market, in order to protect and compound your portfolio, is all about risk management.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Brandon Bischof

As a Vice President at Canterbury Investment Management, Brandon is a thought leader in exploring and developing evidence-based approaches to money management. He is co-director of Canterbury Analytics Group, which creates sophisticated applications and processes that embrace “disruptive innovation.” Brandon is a Chartered Market Technician (CMT).

Read Brandon's Bio