Low Volume Means No Investors

August 24th, 2012
in Gary's blogging

Friday's Thoughts for 08-24-2012

Interesting article (below) in that there are hard to find graphs here that go back to 1997 and gives a meaningful picture of what has been volume wise for the technically inclined. The author, James Bianco, finally claims that volume is low not because of human traders not trading, but because most trading is a “move away from the NYSE in favor of electronic exchanges”. This is really far fetched to say the least in my opinion. Volume is low simply because there is no one willing to take another kick in the butt. This true across all of the exchanges, not just the NYSE.

Follow up:

His perspective is quaint, but shallow, ignoring why Mom and Pop and the cash crowd are no longer trading and investing. Next weeks articles will help fill in the missing pieces of where the cash crowd went and why. That missing piece of reality places a lot of emphasis on the critical nature of today's negative perception of US markets and the true nature of low volume. The cash crowd played an important part in the old markets along with 401 savings and other long term investments. In 2009 they not only lost a great deal of market value but the Keynesian members of the Fed reduced interest that further eroded their income. This availed large gains for the banks and other large financial institutions but not for the 401 savers or the 'little guy'.


What did the cash crowd finally do after been beaten severely by the very same institutions that were in place to help them? They left in groves; despondent and in many cases broke nowhere to go except back to work. They left what was once a safe haven for saving and cashed out stuffing their money that was left under the mattress. Exacerbating this economic problem many millions became unemployed after the 2009 debacle loosing their stock market savings. Amid all of this, and further weakening the economy, many found their homes underwater, unable to continue paying their mortgages and were foreclosed on .

The 401 accounts were hit just as hard during this last rescission. Retirees of that same 2008 -2009 period, that were depending on those 'savings', were really screwed as the markets descended and left them with a fraction of what they had hoped to retire on.

All of the above and the many crooked financial deals, bank corruption, stupid politicians, outright criminal activities and other government’s other stealth bailouts that have been an all-out assault on the small guy, which is still on the rise I might add. By choosing the big banks over the little guy, the government is dooming both.

These numerous adulterous assaults and flat out criminal activities have reduced the market place trading members to investors that are either professional or those that still think they can beat the market. I call this group the 2 percenters as that, in my estimation, is about how many humans are actively trading.

His statement below “. . . while composite volume is indeed down, it is not the epic collapse that NYSE-only volume suggests” does not take in account the many other factors governing this market casino and its movements.

The 'secular bear' is going to continue, thanks partly to the HFT crowd and 'Dark Pools', moving not as fast as it would if Ma and Pa were still doing their panic buying and selling moving the markets around in the old fashion way. The market movements of today's markets are going to be muted, except for some unknown Black Swan moment, moving in swings not exceeding 2% as that is how many are trading.

There is a lot more going on beneath the hood of this market 'car' and many financial savants are either unaware of the deep fast moving currents or purposely ignore the obvious. Most financial pundits are taking a single slice of information and claiming 'that is the reason for . . . '. and they will only be partially correct, if that. Therefor, I would maintain their prognosis of the current state of affairs is lacking insight and additional future cognitive content are also in doubt.

Until the unemployed individuals of the World become gainfully employed, have discretionary monies, able to purchase a home and maybe even have a 401K, this financial mess we are witnessing will only get worse, much worse. Low volume, like the lull before the approaching storm, is only one of the many warning signs.

Understanding Stock Market Volume By James Bianco

In the video, Bloomberg talks about falling stock market volume. Generally they are correct, but we believe a clarification is in order.

The chart below shows a version of what Bloomberg discussed, the 10-day moving average of NYSE-only volume. By this measure, the last 10 days of volume is at its lowest level since June 1998, including holiday weeks. NYSE volume is disappearing before our eyes!

This does not mitigate the story that volume is dismal. It still is. But it highlights the move away from the NYSE in favor of electronic exchanges. And when one factors that up to 75% of daily volume is done by a computer with another computer, humans making capital asset allocation decisions are indeed becoming rare.

One interesting point of low volume of late clearly indicates that money is NOT being poured into the markets. Further supported by the ease in which markets can melt down and on usually heaver volume. Thus supporting a weak market nearing a top or perhaps even there. Market-bots will eventually collapse on their own and go out of business as volume dries up even further.


Why Volume Matters - The UnBearable Lightness Of Market Rallies

It is often said a picture paints a thousand words; in the case of this chart, it paints more. Day in and day out, there is one inimitable indicator that if looked at will tell you everything you need to know about the day's market performance - volume. The last few weeks - post-Draghi, Post-Knight, stunned many with just how low volume can get; and implicitly just how much the battle-bots remain in charge.

Clarifying this picture of low volume strength and high volume weakness, John Lohman has created the following chart - summarized thus: YTD, low volume days have seen the S&P 500 rise around 15% in aggregate, while high volume days have seen the S&P lose around 5% in aggregate.

The linear nature of the low-volume move is simply remarkable - perhaps September will bring some real volume back, and now we know what that means for market direction.

Unbelievable. And it is getting worse.

With 30 Minutes To Go, NYSE Volume Run-Rate Hits Low Of Year


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Written by Gary

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