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Trading Volume

December 21, 2011 – 5:51 pm

Trading volume across almost every market, i.e. stocks, bonds, currencies in the U.S. is down causing a strong headwind for the possibility of a further Christmas rally. The rally we have had started in October, then gave back half of that move in November, then up again the last few days of November and first few days of December. Since then it has been a slow deflation of that rally. The market is still holding up from the summer lows but December has not seen the yearly rally it normally enjoys as we enter the last two weeks of the month.

Trading volume both in stocks and bonds have shrunk sharply and without it, markets tend to drift downward. This lack of volume is coming from both the retail customer as well as the professional. On the professional level it is because of changes to the banking system where trade desks are being shut down for many financial institutions. That volume will not be returning. For the retail investor, who has experienced several financial shocks in recent years, not the least of which is the loss of value in his/her home, trading in stocks has been a losing proposition for over 11 years. It will take a lot of confidence building for the retail trader to return.

Therefore, low volume is here to stay. That does not mean the stock market will not rally. Low volume may mean more volatility but as we saw in 2009, after the market bottomed in March, a low volume rally ensued until the end of the year and it was strong.

Good Trading
Steve Peasley

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