Last week on CNBC, Bob Pisani was warning viewers not to fall for the “light summer volume” meme. That was an example of CNBC giving us excellent advice. The rally that we saw in August is suspect because it came on light volume, and it wasn’t just because the big fund managers were on vacation.
In fact, in August 2007 there was a huge surge in volume over July of 2007. In the table below I list the big-four ETF’s, and two smaller ones that have been leading the market recently. All of them had huge surges in volume from July-August 2007, and huge drops from July-August 2008 (volume numbers are millions):
|ETF||July 2007 Volume||Aug 2007 Volume||% Gain||July 2008 Volume||Aug 2008 Volume||% Gain|
The almighty XLF had the biggest drop – down 44%! Retailers (XRT) and homebuilders (XHB) were down big too.
I spot-checked several more ETF’s, and it was the same story for all of them. Even hot areas like health care (XLV) and biotech (XBI) saw declining volume in August.
Before you argue that we had a high-volume capitulation in July and that we can’t expect August’s volume to match that, go back and look at July 2007. There was a high-volume capitulation there too!
The big money is simply not buying into this rally. Neither is the public.
Will the public eventually get sucked in as they did during the March-to-May rally? If they do, its going to take an even bigger snow job to lure them in. Just imagine what the average person thinks when they turn on CNBC and see a story about brokers who won’t let investors withdraw money until an attorney general sues the broker and forces them cough up.
Wall Street has really shot itself in the foot with the auction-rate securities debacle.
I saw one story on CNBC about Fidelity refusing money to some of its investors, complete with footage of a Fidelity retail store. It wasn’t quite like the IndyMac footage, but some viewers might have taken it that way. If you can’t trust Fidelity, who can you trust?
And it’s not just retail investors. Rich investors have probably heard the stories about hedge funds refusing withdrawals (“gating”), especially since Alan Abelson wrote about it in last week’s Barron’s. A gating clause at a hedge fund works like this: if you stop by the hedge fund office to try and get your money out, the receptionist pushes a button under her desk, and a big iron gate comes down out of the ceiling to capture you. Then she presses another button that releases the hounds to come and dispose of you.
So, now investors are beginning to be concerned about the return of their capital rather than the return on their capital. If you add that to the fact that the American and global economies are decelerating, you don’t really have a good recipe for a lasting rally.