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Where Has All the Volume Gone?

 April 10, 2008 10:21 AM

A major talking point this week thrown around Bloomberg, among others is the incredibly low trading volume we have seen on this recent rally. Many people are instinctively asking, "What does this mean?". Some people believe that it is a signal that the rally has very little conviction and will be shown to be a dead-cat bounce. Others believe that with tons of money on the side, it shows a climb up the wall of worry, and a much more stupendous rally with higher volume once the cash gets put to work. The consensus seems to be that investors seem to be in a holding pattern, waiting for some sort of signal, and where we're going depends on who you talk to.

Trading on the New York Stock Exchange dropped to the lowest level this year, a sign that changing profit forecasts are making investors reluctant to buy or sell stocks before companies report first-quarter results.

[Related -Four reasons a stock market correction is likely]

About 1.2 billion shares traded on the NYSE yesterday, the least since Dec. 31. Over the past four days, an average 1.24 billion shares changed hands, 27 percent lower than the 1.69 billion daily average this year. Volume on the NYSE this year had jumped to 1.72 billion shares a day through April 2 and was on pace to climb to a record, according to Bloomberg data.

Analysts surveyed by Bloomberg have cut their estimates for Standard & Poor's 500 Index companies' first-quarter profits every week this year as evidence grows that the economy may be in a recession. They now forecast a drop of 11.3 percent, compared with an increase of 4.7 percent at the start of 2008. The first S&P 500 companies began reporting earnings this week, including Alcoa Inc., which said profit fell by a worse-than-projected 54 percent.

[Related -Stocks Bounce On Strong GDP Report]

"Given the uncertainty on how the economic downturn will ultimately impact profits, investors have decided to sit on their hands and take a wait and see attitude," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago, which oversees about $62 billion.

Two things I found interesting after investigating it. The first is just a hypothesis or thought that I came up with.

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