Barron’s Michael Kahn points out that Weak Trading Volume is Troubling for Stocks:
"In the stock market, fuel is trading volume. Without volume, a price advance
will soon slow down, if not stop and reverse. Momentum may keep trends going for
a while, but sooner or later the market is going to require buyers to put real
money where their collective mouths are and buy a lot of shares.Chart watchers call this a bearish divergence as prices rise
while indicators, volume in this case, fall and typically it is price action
that adjusts.The market has reached new highs but has done so on less
activity. It is a warning sign that something is not quite right with the rally,
but it does not constitute a sell signal on its own. Still, the fact that the
public is not buying like crazy, despite what the pundits are saying, is worth
knowing.As most people know, Wall Street is ripe with colorful sayings
and one that comes from the technical side is "In price, there is knowledge." It
is another way to say that all information is in price action."
Source:
Weak Trading Volume Troubling for Stocks
MICHAEL KAHN
Barron’s Wednesday, March 15, 2006 http://online.barrons.com/article/SB114243868226998965.html
How does seasonality figure into this? Does the second to third week of March typically slow down?
What is the impact from “Spring Break”? (if any)
Very interesting…. but I’m still waiting for the crash. Maybe Ben’s comments and tomorrows PPI will speed this up a bit.
Bernanke speaks!
What does the historically unusual behavior of long-term yields imply for the conduct of monetary policy? The answer, it turns out, depends critically on the source of that behavior. To the extent that the decline in forward rates can be traced to a decline in the term premium, perhaps for one or more of the reasons I have just suggested, the effect is financially stimulative and argues for greater monetary policy restraint, all else being equal. Specifically, if spending depends on long-term interest rates, special factors that lower the spread between short-term and long-term rates will stimulate aggregate demand. Thus, when the term premium declines, a higher short-term rate is required to obtain the long-term rate and the overall mix of financial conditions consistent with maximum sustainable employment and stable prices.
http://www.federalreserve.gov/BoardDocs/speeches/2006/20060320/default.htm#f1
But then he goes on to talk about the savings glut.
On the other hand, this is the second time (I am aware of) that a fed governor has said monetary policy may need to be more restrictive to take account of the behavior of long term rates.
As a followup to my last post, here is a link to the speech on March 9 by Geithner where he says that, due to Chinese buying of dollar assets depressing long term rates, monetary policy may need to be tighter:
What might this mean for the conduct of monetary policy? To the extent that these forces act to put downward pressure on interest rates and upward pressure on other asset prices, they would contribute to more expansionary financial conditions than would otherwise be the case. And, if all else were equal, which of course is unlikely ever to be the case, monetary policy in the affected countries would have to adjust in response; policy would have to act to offset these effects in order to achieve the same impact on the future path of demand and inflation. To do otherwise would run the risk that monetary policy would be too accommodative, pulling resources from the future in a way that would alter the trajectory for the growth of the capital stock, perhaps amplifying the imbalances, and compromising the price stability.
http://www.newyorkfed.org/newsevents/speeches/2006/gei060309.html
In the speech excerpted in my post above, Bernanke seems to downplay this hypothesis with his “savings glut” theory, so maybe what we have going on here is a little debate . . .
Sounds to me like Uncle Ben is giving himself the green light to invert the curve especially as long as the 10YR remains low and “stimulates demand”:
“If spending depends on long-term interest rates,” Bernanke said, and special factors lower those rates, then demand will be stimulated and “a higher short-term rate is required.”
Ahh…. read, “I’m inverting”
Is his belief that demand is stimulated by long-term interest rates because they set 30YR mortgage rates? There is a difference between long-term rates and long-term amortizations. I don’t know of too many banks pricing loans off of 30YR mortgage rates and i’m pretty sure that prime, their pricing benchamark, is floating off of fed funds. i guess i’m either really confused or really scared. does this guy know what he’s doing?
“one and done” is starting to look a bit foolish tonight, is it not?
>>>higher short-term rate is required to obtain the long-term rate and the overall mix of financial conditions consistent with maximum sustainable employment and stable prices.
BTW— no Bernanke “put” for the homebuilders… can’t wait to see how that sector responds tomorrow.
>>>A slowdown in the U.S. housing market would still be entirely consistent with economic growth at or near potential, Federal Reserve Chairman Ben Bernanke said on Monday.
well I guess this is a better summary of the rate hike debate… anyway, it seems to me that the Fed will have to keep raising rates until someone feels a pinch. How else do you know to stop tightening if you don’t know exactly why long term interest rates are so low?
>>>Bernanke revisited a thesis he first laid out a year ago that a “global saving glut” – an excess of savings because of a dearth of enticing investments – could be depressing rates.
If this were the case, he said, then as long as the factors behind it persisted “global equilibrium interest rates – and, consequently, the neutral policy rate – would be lower than they otherwise would be” to keep the economy on an even keel.
But Bernanke laid out a number of other possibilities and concluded: “The bottom line for policy appears ambiguous.”
Bernanke said that if the low level of long-term rates reflected a decline in the compensation investors demanded to cover the risk of losses on long-term holdings, then it could signal stimulative financial conditions that would require higher short-term rates than otherwise to offset.
“But to the extent that long-term rates have been influenced by macroeconomic conditions, including such factors as trends in global saving and investment, the required policy rate will be lower,” Bernanke said.
I see Bernanke is the proverbial two handed economist. “on the one hand… savings glut…. blah blah blah… on the other hand… declines in the term premium… blah blah blah”
So much for a more transparent Fed.
Are you saying Nasdaq or NYSE volume is decreasing? The title says Nasdaq but the chart says NYSE.