The Eerie Implications of Market Volume and Mutual Fund Flows
by ilene - September 9th, 2010 10:56 pm
The Eerie Implications of Market Volume and Mutual Fund Flows
Courtesy of Doug Short
Once upon a time, market volume, in combination with price, was a useful indicator. Or make that indicators (plural), including Rate of Change, Volume Oscillator, On Balance Volume, Price and Volume Trend, Accumulation Distribution, Chaikin Oscillator, Money Flow Indicator, etc.
Even so, S&P 500 volume has been falling since early May with no sign yet of a post-summer seasonal increase. Of course, we’re still in the holiday shortened week following Labor Day. But look at the 2009 volume pattern on the chart. Where was the volume to confirm the market advance after a choppy October?
A recent WSJ article, SEC Is Looking at ‘Quote Stuffing’, mentioned in passing that high-frequency trading (HFT) accounts for about two-thirds of the market’s volume.
I don’t know of a single comprehensive guide to what the retail investor is really up to, but the impression I get is that the equities are not high on the list of where to park money. The next two charts, covering the same timeframe, are based on data in a PDF file I downloaded from the Investment Company Institute. Since the chart above is a broad U.S. Index, the first chart below only measures fund flows for domestic equities.
Naturally these charts are open to various interpretations. Bond Bubble Cassandras will see the last chart as a confirmation of their prophecy. Cheerleaders of ETFs and other alternatives to mutual funds may be inclined to disregard both fund-flow charts as largely irrelevant.
I used the wood "eerie" in the title to this piece primarily to convey my impression of a vague sense of disquiet about markets and the economy. Are retail investors sitting on the sidelines or scurrying to bonds because of anxiety about the market? If so, should we take this as a contrary indicator?
Here’s a more compelling question: If two-thirds or more of daily volume is a function of high-frequency trading, what are the implications for index prices over the long haul?
A year has passed since I posted some charts illustrating the incredible ratio of S&P 500 volume devoted to five financial stocks (see Gaming the Market). Today’s game is no doubt different…
A Review of Our 3 Favorite Leading Stock Market Indicators
by ilene - July 27th, 2010 6:45 pm
A Review of Our 3 Favorite Leading Stock Market Indicators
Courtesy of Brett Owens at The Contrary Investing Report
These days we are keeping a keen eye on markets that have been reliable leading indicators of the stock market. Since 2004 or so, markets have become quite interrelated, creating a lot of interesting relationships in markets that previously had little or no correlation.
The correlation of course peaked during the 2007-2009 downturn, when EVERYTHING dropped by about 50% (except for US Treasuries and the US Dollar). I still believe that was the market tipping its hand, showing a glimpse of an even worse crash to come.
When that crash would (finally) start was something we took at look at this January, when we analyzed the Top 3 Investment Themes to Watch in 2010. On March 29th, just weeks before US equities topped, we revisited the charts of some key leading indicators, and concluded that the reflation rally was perhaps on its last legs:
These non-confirmations could be ominous bearish divergences, indicating the reflation rally is on it’s last legs. The rally appears tired, but is not over yet.
Since it appears that this conclusion was, thus far at least, correct, I’d like to revisit some of our favorite charts – taking a long term perspective – to see were we are at.
Crude Oil – Trading Sideways
Crude caught my eye on Friday when I saw a headline that it was making two-month highs. Taking a longer term view of crude oil, it’s performance looks less impressive:
Crude oil rallied fast and furiously to retake about half of its 2008 losses. It has since stalled. (Source: …