by James Brumley | January 20, 2012 11:16 am
The market might be up for the year, but the trading gurus and the media alike are getting a little anxious about the fact that volume is low. Real low. In fact, the first 10 trading days of this year are the lowest we’ve seen since all the way back to 2007.
What the pros say: It’s a sign that traders have sworn stocks off — at least actively trading them — until it’s clear there’s more benefit than liability in being in the market.
What I say about what the pros say: You think?
The suspected reasons for the trading lull are plentiful, and the likely longevity of the hiatus is varied. But just so we can all get a firm grip on where we’re headed and when we’ll get there, let’s share each one of those opined reasons (with my plain English translation as needed). And more importantly, I’m going to deflate the worry the financial-media machine is trying to generate.
Why is trading interest so low now? Possibilities include:
Here’s the deal: It’s not one of them that’s putting the kibosh on activity. It’s all of them. Of the six, though, I think it’s reason No. 6 — the simplest of them all — that’s really the root of the sleepy open to 2012.
Since the bottom of the August tumble, the market has “traveled” (between major tops and bottoms) a total of 54%, but has only made net progress of about 15%. That’s a lot of ups and downs, and a lot of fake-outs. The direction is irrelevant. Traders can only take so much time on a roller coaster before they want to get off. They’re now getting off. I can’t say I blame them. Before you get too comfortable on the sidelines, though …
Yes, it’s a tepid environment, and one that has the professionals concerned. As Oppenheimer banking analyst Chris Kotowski said in no uncertain terms, “The equity business may well be done forever.” Yikes, though given the low-volume start to the new year, it doesn’t seem impossible.
When you take a step back and really examine it, though, the “lowest 10-day volume start” is a slightly pointless statistic, and the sentiment behind the dwindling volume doesn’t tell the whole story.
To that end, two realities need to be shared:
The aforementioned issues are just a little more than most folks can process right now. But once two or three of those drags are lifted (and they will be eventually), volume’s going to perk up again as people forget about the past and focus on the next round of starry-eyed dreams.
It’s a cycle that’s been playing out for years, and there’s no reason it’ll stop now. It sure didn’t in 2001 and 2008 anyway, when the same “trading is dead forever” assumptions were being made.
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