BUYING VOLUME IS SLOWING. IS THE RALLY DYING OUT?
9 June 2009 by TPC
8 Comments
As we mentioned in late May, the volume of this powerful rally has died out as the rally has extended. This is a glaring characteristic of bear market rallies. Some portion of this could be seasonal (given the beginning of summer), but given the staunch bullishness in the market and the huge gains you have to wonder where the buyers are going to come from in the coming weeks and months if this trend continues. More importantly, is there a catalyst that will keep the buying volume from slipping? Today was another weak days of money flows.
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TPC,
An obvious potential catalyst is the performance derby that may cause institutional money to start rotating cash into long investments. After all, even skeptical people like GMO are saying they really can’t afford to miss out on a new bull market and have to start filtering in cash. Hopefully, they rotate my way into low risk assets. Time will tell.
On the other hand, Larry may decide its time to spook the market back to treasuries in order to reduce the government’s funding costs. Larry, Tim, Hillary, and Ben can easily engineer some way to spook the market.
I think we will definitely see a rally into month’s end so PMs can close out the quarter with another solid month of gains. I also think the weak dollar-long oil trade will continue to take the markets higher. There is no doubt that volume has dried up as the rally has progressed, but at this point what will be the potential catalyst that sparks the selling? The only thing I can think of is rising interest rates.
Good observations guys. Personally, I still think the rally could have legs into the July 4th holiday. End of quarter window dressing and seasonal oil trends keep a long bias.
TPC, Food for thought: As we stand here in 2009 I really question the overall validity of the whole “quarter end”, “month end”, or “whatever end” thesis of market behavior. I truly think it is a relic of days past. Everything is real time now…has been for years. Investors don’t get quarterly statements anymore. They know what is happening immediately. Market performance is a fish bowl now. And, window dressing? Come on now. Who the heck is a portfolio manager fooling by adding strong performers at quarter end and dumping dogs so they don’t show up in a prospectus? Most fund holdings are available monthly now. And, finally on this topic: If Wall Street wanted to do itself any favors these days in an attempt to repair its image they would stop talking about this month end, quarter end stuff altogether. Why? Isn’t it basically an outright admission of a toyed with and manipulated market? Aren’t they basicaly saying to Main Street, “Okay, common folk, now is the time when the boys gamble extra hard with your cash under management, so they can get themselves more jack at the end of the year. They aren’t necessarily trying to invest your money the best way they know how, they are just trying to game an internal bonus structure that rewards them for doing better than x percentage of their peers.” Isn’t this the same system that gave us one postive performing mutual fund last year? I’m pretty sure I read the stat here on your blog; wasn’t it something like one out how ever many thousand funds? So, from my point of view…who gives a rat’s behind what these mindless lemmings think anyway?
Common sense would say you’re 100% right, but for some reason we still see the same trends at month end and quarter end. Whether this is attributable to some other force or the window dressing effect I can’t be certain, but performance tends to be strong during these periods.
Frederick,
It isn’t month or quarter end that matters, what matters is lagging performance. Investors in funds are extremely fickle, and have a propensity to redeem money from funds that lag. Deservedly or not. If you listen to conference calls, you’ll hear mutual fund managers complain about this. Bottom line, the longer a fund lags the market, the more redemption it faces, and the more likely the manager is to be fired. This career risk forces managers to invest out of self-interest.
joe,
do you think that is likely to occur this month?
If you look at the numbers for the volume, and compare vs 2007 and 2008, the biggest difference between the volumes is that the afterhours volume for NYSE has more than doubled since 2007. I think it went from an average of 95 million shares traded after hours in 2007 to over 220 million in 2009. If you take those out of the equation 2009 volumes are much lower than they appear relative to 2007 or 2008. I’m not sure if this is relevant or not, but it’s pretty interesting that such a shift has occurred.
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