Beneath the surface of what looks like steady stock market advance is a cacophony of activity on an individual stock basis. This volatility may also extend to business categories, or even sectors.

This hidden violent trading behavior is in response to news events, earnings results, business outlook, as well as other factors. It’s just that the overall trading environment is so positive that it smooths out this individual behavior in the averages. Recent examples are the near collapse of many retailing companies, airline stocks, semi-conductor firms and then their resurgence. Which ones are next?

Part of the explanation for this is that stock trading has become institutionalized and a big business itself. There are firms set up to do automated trading based upon computer algorithms. Some hedge funds and Wall Street houses employ banks of professional traders incentivized to produce regular results. The result is that a short-term focus overwhelms solid business analysis sometimes. However, for disciplined investors focused on longer-term results, this volatility provides opportunities. Over -reactions are buying opportunities and over- valuations can provide profits. At a minimum this is not activity that should distract from solid rational analysis.

Stay steady, my friends.

The Lonely Bull