Light Summer Volume? Ha!
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 |
| SPY | 3987 | 6242 | +57 | 7471 | 4344 | -42 |
| QQQQ | 2780 | 3836 | +38 | 4122 | 2894 | -30 |
| IWM | 2158 | 3295 | +53 | 2730 | 2087 | -24 |
| XLF | 961 | 1899 | +98 | 5761 | 3236 | -44 |
| XHB | 89 | 142 | +60 | 167 | 113 | -33 |
| XRT | 31 | 43 | +41 | 191 | 147 | -23 |
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.
August 30th, 2008 at 9:39 pm
Good work, Matt. Thanks
August 30th, 2008 at 11:31 pm
That is good work.
August 31st, 2008 at 12:18 am
Great information, Matt. Thanks.
August 31st, 2008 at 10:32 am
Thank you everybody.
Note: Bloomberg is reporting that there will be a special oil trading session at 2:30pm today on the NYMEX because of Gustav.
August 31st, 2008 at 2:50 pm
Oil is up. I’m not getting any data in my trading platform, but the NYMEX has prices on their home page:
http://www.nymex.com/index.aspx
August 31st, 2008 at 4:39 pm
Hi Matt,
thanks a lot for the info.
September 1st, 2008 at 10:30 am
Oil is down over $4 as a weakened Gustav is about to make landfall. Amazing. S&P futures are flat, so stocks look like they want to drop a bit more Tuesday morning.
September 1st, 2008 at 12:34 pm
Matt, are these s&p quotes reliable ? The reason I ask is that on Friday I was watching the nas futures be down only a couple of points, after the news about Dell, seeing the q’s drop in AH on Thursday, etc…
thanks !
September 1st, 2008 at 1:18 pm
With oil down 4+ and the pullback Friday on light volume, I am looking for a rally on Tuesday. Lower oil is just too much of a headwind.
Pretty lousy action in SKF on Friday as well - still think we see a pulback to below 110.
September 1st, 2008 at 1:28 pm
after,
The Naz futures did fall sharply right after the Dell news. I think that a small point drop was shown because the fall came before 4:15pm on Thursday.
Matt
September 1st, 2008 at 1:33 pm
Randall,
Stock futures have already failed to rally as oil futures have plunged. Also, the first trading days of June, July, and August saw sharp gaps down. That’s what happens when the big funds end their month-end window dressing, and there aren’t a lot of other buyers around. So, I think that there is some unfinished business to the downside coming, though maybe not for NASDAQ stocks. The big funds clearly lost control there on Friday, and the Naz might be sufficiently washed out for the short term.
Matt
September 1st, 2008 at 6:20 pm
Look for a 2 day rally starting tomorrow. There will a big sigh of relief from Gustav and the markets will probably rally.
September 1st, 2008 at 7:16 pm
Pooch, you could be right but the futures don’t show much still - and doesn’t the market too often do exactly the opposite of what might seem reasonable to expect ?
Also, really, the first Tuesday of Sept. is really like a new yr for financial markets…and we’ve discussed here what investors are going into the new year with - no shortage of what to be bearish about…
September 1st, 2008 at 8:42 pm
“…and doesn’t the market too often do exactly the opposite of what might seem reasonable to expect ?”
You got that right. I’ve made my biggest blunders trying to figure out what was going to happen next. It can be done, but folks like me get it wrong every time.
One day I will learn how to accurately anticipate, using proper analysis, the next move.
Until then, I just go with the flow and hope the market moves big-time one way or the other - like a spider waiting for prey to hit the web.
September 1st, 2008 at 8:43 pm
After futes are up NAZ up 6 points could be the last decent rally of the month.
September 1st, 2008 at 9:13 pm
okay, i’ll see ‘em on the 6 points then -g-
if that’s all they got at the open, maybe that is the high for the month…
what i was thinking (opposite thinking - see the Seinfeld episode re George Costanza) if the market could rally on terrible effects from a hurricane, maybe it falls on the opposite ?
September 1st, 2008 at 9:21 pm
Matt, That was nothing short of excellent.
September 1st, 2008 at 10:22 pm
Topper Harley,
Thanks. It doesn’t mean that the market will flop right over, but if the big money isn’t buying in, then neither am I.
Matt
September 2nd, 2008 at 1:26 am
fundemantals are terrible ,charts are flopping over,but markets act irrational
September 2nd, 2008 at 1:26 am
Futes not looking to good now
September 2nd, 2008 at 5:00 am
Futures are up 3/4 up to 1% !!! Oil price falling like a dead stone.
September 2nd, 2008 at 5:20 am
Looks like we gwt that rally!
September 2nd, 2008 at 6:40 am
WOW WOW WOW - USO at 88, UNG at 34 pre-market, Oil at 106???
If this doesn’t spark a MASSIVE rally, then the mother of all bears is really upon us….
September 2nd, 2008 at 7:20 am
Randall,
you got it. Now the demand side of the oil trade is played. Global recession leads to lowered demand. Bears make their spin now.