Market Volatility Continues On Low Trading Volume

Extreme volatility on low volume continues to be the hallmark of the US equity market. Yesterday was a classic roller-coaster, driven mostly by programmed trading as human traders stood on the sidelines.

For the DJIA index, there was a rally of +225 points in the first two and a half hours, followed by a fall of -365 points in the next three hours, ending with a final hour run-up of +310 points.

At the close, the DJIA (+151.17 +1.83% to 8424.75), S&P 500 (+8.37 +0.98% to 859.12) and NASDAQ Composite (+1.22 +0.08% to 1483.27) were, to say the least, confused.

The Canadian equity market was also in turmoil as the Toronto Composite gained +40.28 +0.46% to 8835.73, while the Venture Board plunged -35.54 -4.52% to 750.25.

In NY, the leading sectors were Energy (XLE)(XLE +2.8%) and Technology (XLK)(XLK +1.4%) while the losers were Financials (XLF)(XLF -1.4%) and Basic Materials (XLB)(XLB -1.1%).

Typically, the XLE and XLB track together, which wasn’t the case. Also, as a rule, XLK is strong when the NASDAQ Composite is strong, which wasn’t the case. So, chaos was the order of the day.

In the industry groups, the leaders were Big Oil ($XOI +3.5%), led by Exxon (XOM)(XOM +4.0%), Computer Hardware ($HWI +3.2%), led by Hewlwtt-Packard (HPQ)(HPQ +14.5%), and Oil Services ($XOI +2.8%). Here are the charts for XOM and HPQ. The losers were Broker-Dealers ($XBD -2.2%) and Semi-conductors ($SOX -2.0%).

The extreme traders in the Cara 100 were, for the winners, Brunswick Corp (BC)(BC +20.2%), Research In Motion (RIMM)(RIMM +11.9%), Manufacturers Life (MFC) and GOL Airlines (GOL) both up +5.6%, Nokia (NOK)(NOK +5.2%). The losers were Interactive Brokers -7.7% on 256% of average daily trade volume, PDA, KB and TCK, down between -5.3% and -5.8%.

Many of the extreme winners one day are the extreme losers the next day, probably the result of programmed trading in a low volume environment.

The US long bond ($USB) gained +1.13% to 120.16; however, the bond futures closed before the equity market began to soar, so today the bond futures are likely to open well down. T-Bill’s were yielding just 0.11%, which underscores the degree of risk aversion in the equity market these days.

On the forex front, there was not much action compared to a week ago: the $USD was up +0.46% to 87.20. Yesterday the gain was just +0.09%. The Euro was down -0.12% to 126.28. The Pound -0.19% to 149.65, the Yen -0.80% to 102.97 and the Loonie -0.45% to 81.18, were also weaker.

$GOLD lost a bit to 738.20 (-$3.80/oz).

$WTIC (Crude Oil) gained +$0.36/bbl to 55.85.

Overnight, the Asia-Pacific equity markets were all down except for China where the Shanghai Composite boomed (+6.05% to 2017.5) as domestic energy company stocks soared as a tax on imports was introduced.

The Japanese Nikkei (-0.66% to 8273.2), Hong Kong (-0.77% to 12815.8), Australia (-0.85% to 3483.2) and India (-1.83% to 8773.8) all traded lower on bank viability issues and economic recession concerns. The focus on Japanese banks is now on industry consolidation.

At 8:00am ET (vs 6:15am ET) today, the French CAC was down -2.40% (-1.25%), German DAX -2.71% (-0.66%), and UK FTSE -2.27% (-1.43%), which is worsening. Banks are continuing to pull equity markets down.

At 8:00am ET (vs 6:15am ET) today, the gold, palladium, platinum, and silver spot prices were: 735.30 (737.28), 213 (212), 830 (836), and 9.40 (9.51).

At 8:00am ET, the Euro is flat at 126.31 (vs a bit soft at 126.10 at 6:15am) and $USD is at 87.375 (vs 87.455).

Crude Oil is at 54.50-54.53 and stable.

The DJIA futures have dropped from 8385 to 8368 in the past two hours, down -126, but hardly the “rapidly worsening” conditions that Bloomberg is reporting.

Comments & Outlook

When watching Financial Entertainment TV, traders have to be on the alert for two situations:

(i) It’s the job, according to the marketing suits at FETV, to create a sticky audience. They do that by playing on your emotions via exaggeration, hype, replays of guests like Nouriel Roubini and Marc Faber who they know cause the blood to boil in many of the audience, and by raising their voice, speaking rapidly, walking into camera shots, and too many tricks to mention here. I find it disgusting - not for me because I look at these people wearing clown suits - but for an audience that hangs on every word.

(ii) Traders are slow to readjust their sense of change. They have become used to trading percentages - it used to be eighth’s a few years back - and when prices drop to the extreme cycle lows present today, it’s more spectacular when a 20 cent move in a $2.50 is reported as +8% than say a year ago when that stock may have been a $10.00 stock and the 20 cent move was only +2%. This is why some day traders like to take 100,000 share block positions in the $2.00 stocks, but wouldn’t dare in the $100 stocks.

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Comment by Umesh Matale

2009-01-15 02:10:26

please help me to earn more money. I am working in US stock market as trader, I want to earn money to help poor student in India.

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