Monday, March 21, 2011

Beware of Low Volume

Before I start here I wanted to let you all know that I am taking a break for awhile in order to take care of some things.  I'll try to pop on here and throw up a post now and then but no promises.

As for the market, I just wanted to warn everyone about low volume trading days.  Take a look at the SPY here on the daily:

My Take:

As you can see at the bottom of the chart above, volumes are dropping again as things settle down in Japan.

We tend to drift up during times like these because the robot trading tends to dominate the price action.  If you take a close look at the trading volumes you can see that the market tends to selloff on the heavy volume days and rise when the volumes fall of a cliff.

This happens because the HFT's can basically take the market wherever they want on lighter days because they are supplying the liquidity for the markets.  Throw in the seemingly endlessPOMO Fed injections you have the perfect makings of a bullish tape.

The Bottom Line

As long as these trading robots are free to run wild there really isn't too much analysis that you can do when it comes to stocks.

None of this is investing.  It's speed trading done by a bunch of algos that hold positions for a matter of seconds.  The fundamentals of the market don't matter in this type of market setup because these speed demons are in and out of positions faster then you can say the word "elephant".

The fundamentals of the market have changed folks:  Right now there are NONE!  You need to wait until the volume picks up in order to have any chance at accuratelty analyzing this beast because it makes algo trades a smaller part of the price action.
Let me close with my usual bearish tone:)  None of this is going to end well because the fundamentals SUCK.  The February housing numbers were in the toilet this morning.  Housing inventories are soaring. 


The geopolitical situation is dire and so is the European debt crisis.  These stories haven't gone away folks!  They have been muted by a bunch of black trading boxes that have taken over Wall St.

The sad reality here folks is no analysis matters in a market like this as long as 70% the stocks are trades are bought and sold for a matter of seconds. 

I continue to ride this storm out in metals, cash, some short hedges, and a short on treasuries that I plan on increasing in the very near future.  Be patient and careful with this market.

A flash crash on some type of horrific developement wouldn't surprise me in the least.  Longer term I still have my eyes focused on the ending of QE2 in June.  April and May are going to get really interesting as all eyes begin to focus on the Fed.  Until later.....


getyourselfconnected said...

Hey Jeff!

If you get a spare minute, drop me a line so we can catch up. Hope all is well.

Bill Hicks said...

Keep an eye on Japan. The only thing that has "settled down" are all of the official lies about how bad it really is.