MSM Late to the Party

Trading volume drop can’t just be blamed on summer – Market Extra – MarketWatch.

The blogosphere has been discussing these historically low trading volumes for months. It’s about time the MSM started paying attention.

The authors are following the MSM narrative that investors “are waiting on the sidelines for policy action.” The real problem is that regular people are leaving the market in droves, because they no longer perceive it as fair. Outflows from equity mutual funds continue unabated, and people have stopped buying and selling stocks as the data shows.

People will not return to the market until it is reformed.

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One thought on “MSM Late to the Party

  1. File under “Prices can fall of their own weight, but it takes buying to put them up.” This particularly during and following the market’s August 2011 swoon (see NYSE volume specifically). However, upside volume has been persistently diminishing since March ’09 bottom, and never has it exceeded downside volume during 2008’s collapse. Indeed, this trend has been intact since Y2k, if not 1998’s LTCM meltdown.

    Now, I argue strong hands have been trimming equities exposure more or less since Y2k and essentially have been moving higher up in the capital structure, particularly since 2010. Presently, trapped weak hands (among which are white shoe Wall Street firms along with other “titans” of the financial industry) have been employing many tricks of the trade since March ’09 bottom (particularly out of Chicago using both futures and options markets) venturing to strengthen an otherwise hopeless position while the world at large plays make believe supposing confidence in a collapsed shadow banking system might be restored to its pre-2008 status enjoying an infinite multiplier requiring the thinnest of equity capital to back what still is an obscenely leveraged book with no shortage of assets marked to fantasy. This gig is failing, however, and volume (among other measures) reveals animal spirits are dead.

    They say the market climbs a wall of worry. Now, what do investors do when they are worried? Why they sell, of course. Which is why it is considered a healthy sign when volume is increasing during a market advance. Increasing volume alone reveals the wall of worry being climbed, not a gaggle of incompetents squealing for more QE.

    Given a declining volume trend since March ’09 in particular, one might conclude complacency prevails. Equity stakes are increasingly being held, rather than sold and absorbed. However, truth more likely is that, weak hands have no choice but hold on for dear life. Their grossly mis-priced, and still grossly leveraged, credit market exposure requires it.

    As I already indicated, there are other measures presenting an objective indication that, animal spirits are dead. For the asset class at the bottom of the capital structure — equities — animal spirits are essential if an advance is to prove lasting. So, returning to the old adage claiming, “Prices can fall of their own weight, but it takes buying to put them up,” we are at a point where one is wise to fear that, once prices begin falling of their own weight, circumstance very well could turn dire and result in an avalanche. Being an Elliott Wave analyst, I will close by saying there is a strong case for supposing major indexes are on the verge of collapsing to levels last seen in the 1987-1994 period at a minimum. Indeed, what could be dead ahead might in fact prove even worse.

    One final remark. Being that junk bonds also are equity, judging by increasing junk bond inflows resulting in spreads some are calling divorced from fundamental reality, we might be looking at the new NASDAQ Y2k.This could be where stock exchange volume is migrating.

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