Most in the media are proclaiming that the recession is over. A recession is defined as a slowdown in economic activity by GDP (Gross Domestic Product) declining and being negative for two consecutive quarters. Therefore, with the massive stimulus in the global economy one can make a case that the recession is over with GDP going positive and increasing for the past two quarters.
Let’s say the market is in an economic recovery and the financial crisis is behind us. Normally one would expect the trading volume in the stock market to increase. This has not been the case. Volume for the month of November and December 2009 have been lighter than August of 2009. Remember August is notoriously the lightest trading month of the year. Hence the term ‘summer doldrums.’ January is usually a very high volume month, yet it has started off the New Year even lighter than the last two months of 2009.
Light volume markets are very difficult to short. Hence the old saying, ‘never short a dull market’. This is as dull of a market as we have seen in many years. While there are some stocks such as Apple (NYSE:AAPL), and Amazon (NASDAQ:AMZN) that have traded with respectable volume the bulk has come from government owned names. Stocks such as Citigroup (NYSE:C), American International Group (NYSE:AIG), Fannie Mae(NYSE:FNM), and Freddie Mac (NYSE:FRE), have often accounted for one third, and sometimes half of the daily volume on numerous trading days.
Something is not adding up when it comes to the current trading volume. Especially with the market trading higher by more than fifty percent since the March 2009 low. Healthy bull markets have moved higher on strong volume, while they pullback on light volume. This current market does the exact opposite. This bull run from the March lows has moved higher on light volume and pulled back on heavy volume. Please note that heavy volume has historically meant institutional participation and not mom and pop with an on-line account.
In 2007 the market had three panics. All of them were extremely heavy volume sell offs before making the October 2007 top. However, the volume moves on the bounces leading up to the October top was on much lighter volume. The point is when markets trade higher on light volume it is cause for alarm even with a market on steroids that is currently taking place.
Nicholas Santiago,
Chief Market Strategist
www.InTheMoneyStocks.com
