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"The January stock rally has brought with it hopes that the market will rebound from last year's middling performance, but it has lacked one key ingredient: enough investors.
The Standard & Poors 500 has rallied 4.5% so far, but the average retail investorcounted on to power the market has stayed away.
Average daily volume on the New York Stock Exchange hasnt eclipsed one billion shares since Dec. 16a flat day for the marketand volume has been above its current 50-day moving average just once in the last six sessions.
So what does it mean?
While the market has had plenty of experience with low-volume gains since the financial panic hit in 2008, the lack of participation by mom-and-pop investors still spurs concerns over the rallys durability.
Market strength has been undermined by light trading volume, Ari Wald, equity analyst at Brown Brothers Harriman, said in a note. Light selling pressure in November was a reason we viewed the November-December correction as a healthy pullback that set the S&P 500 up for its most recent strength. My view is that stocks can grind higher given light volume, but it is difficult to sustain gains given these conditions.
The early advances for 2012the best since 1987are reminiscent of how the previous year started. The S&P 500 registered a 3.33% jump at the same point in 2011, but NYSE volume at that point averaged nearly 1.1 billion shares a day.
Stocks wobbled in November, though on light volume, and recovered in December, which featured a sharp gain on volume that was decent for a holiday season.
We view strong volume flows as the final step toward confirming a reversal, and without it there remains evidence to suggest another correction could lurk in the coming months, Wald said. It will be important to watch volume during the next setback. If volume remains light, the grind higher continues. If volume on down days begins to outpace volume on up days, there might be some money to be made on
| the short side. One positive note for the market is that investors last week took the most money out of zero-earning money market funds since September. Cash on the sidelines fell by USD 12.6 billion to USD 2.69 trillion, according to the Investment Company Institute, which tracks fund flows for the government. Retail investors pulled out USD 3.72 billion, while institutional funds lost USD 8.87 billion, ICI said. Investors also remain optimistic, though a bit less so than in recent weeks. The latest American Association of Individual Investors survey shows bullishness down just 1.9 percentage points to 47.2%, while bears jumped 6.4 percentage points to 23.6%, largely due to a substantial decrease in the number of those neutral on the market. The rallys future, then, seems to depend on whether those fence-sitters pulling cash out of money markets are willing to put it to work in the stock market. This mix of good and bad news explains why advisors who are hopeful arent exuberant, said Charles Rotblut, vice president and editor at AAII. Many bulls expect more volatility (as do many bears). In other words, this is shaping up to be a year when market forecasts come with a footnote that reads fingers crossed. " Steven Morris Chartered Accountant (SA) 3 Bickley Road Sea Point Cape Town 8005 Mobile :+27 83 943 1858 Facsimile : 0866 712 498E-mail : steven@global.co.za |
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