The Trend

Where Has All the Market Volume Gone?

Low volume on the market is getting thinner by the day.

All thanks to fear surrounding the outcome of the U.S. Circus… sorry Elections, likely failure to reach an accord with OPEC and non-OPEC countries, and the very real possibility of an interest rate hike in December.

Just one wrong move with any of those catalysts could send the markets down thousands of points, as we saw in early January 2016.  No one wants to be part of a global market that could be easily stripped of another $6 trillion in weeks.

It’s part of the reason the Dow Jones for instance is stuck in a consolidation pattern jumping 200 points one day, only to lose 200 the next…

So here we are with volume down 19% to 20% since October 2016 began – a very strong indication that traders are done until the above-mentioned concerns are behind us.  At the moment, cash levels are higher than normal, too.

Worse, in August 2016, volume was the lowest it has been since September 2014.

“I find it strange, and I think it’s definitely concerning we’ve had all these trading sessions that ranked in the lowest of the year,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners, as quoted by The Wall Street Journal.

“It shows a lack of participation, and a lack of interest to get involved and really do anything at this point.”

“The past nine trading sessions have included the third- and fourth-lowest-volume days of the year, according to WSJ Market Data Group, whose calculations include trading volumes from the NYSE, Nasdaq, NYSE MKT and NYSE Arca exchanges.”

Unfortunately, moving to cash is the wrong way to trade the market, though. Instead, it’s time to uncover some of the most unfairly undervalued names on the market, especially those that have been unfairly punished – like biotech – and stocks that’ll benefit no matter who is President – such as infrastructure trades.

In fact, when it comes to biotech, most of the political risk is priced in.

Not many people are aware of this, but, according to analysts at Jefferies, biotech stocks are trading near-historic low multiples even more discounted than the S&P 500.  The average valuation of the four biggest biotech stocks –Amgen, Biogen, Celgene and Gilead—is 12 times earnings, as compared to the S&P 500’s 16.6x earnings.

History suggests that further downside is limited, and that political risks are greatly priced in.

Without much volume, stocks won’t move much. 

But the last thing you want to do is move your trades to cash positions.  You’ll miss the market resiliency rally once the storm clouds clear.  And they will…