The Big Coil

Closely monitoring the market has been a real snooze lately…

“If you didn’t pay attention to the stock market last week, you didn’t miss much,” quipped my trading buddy Jonas Elmerraji.

It’s true. Summer can be a tough time to be a trader.

How tough? Back on July 15, the market hit a rather unremarkable (and completely boring) milestone.

Just two weeks ago, volume on the New York Stock Exchange fell to its lowest level of the year, according to the WSJ Market Data group. Only 2.57 billion shares exchanged hands. To give you some context, the average daily trading volume was more than 4 billion just two years ago.

Volume Plummets

Where the heck did everybody go?

Sure, it’s summer. It’s the season when traders typically peel their faces off the computer monitors and head for the shore. But volume has been trending lower for years now. Ever since the financial crisis, average trading volume has sunk lower and lower.

However, you shouldn’t get too comfortable with this low-volume environment. The time for mean reversion is near, says S&P Capital IQ’s Sam Stovall.

“I believe the watch phrase for the future of S&P 500 trading volume is: Prepare for an upturn,” says Stovall via MarketWatch. “In the short term, seasonal factors are likely to increase average monthly volume in the remaining months of the year. From a longer-term perspective, I believe that current volume levels will not likely become the norm. As the global economy continues to recover and corporate earnings remain on the mend, individuals and corporations will eventually feel the need to put their money to work.”

Just as the sideways price action we’re seeing this month won’t last, neither will the low-volume conditions that have characterized the post-financial crisis market.

Right now, the market is like a giant spring that has coiled for years under the weight of the world’s worries. When the spring snaps and normal trading volume begins to rush in, dramatic rallies are possible.

Your job is to get in ahead of the rush. Use the sideways market to load up on your favorite names. Waiting will cost you dearly if traders kick the market back into gear this fall…

Regards,

Greg Guenthner
for The Rude Awakening