Sunday, September 6, 2009

Effective Volume*: Institutionals have left the field to the Gamblers and/or Program Trading








Observations:
  • SPY and IM (Institutional Money) Flows are consistent showing that big Institutional have clearly slowed if not stalled further accummulation in the later stages of the rally
  • UYG (DOUBLE LONG FINANCIALS: hedgefund trading vehicle in order to "play") has cleary seen some profit taking on the large traders side
  • EEM (emerging markets) has been pumped up by small traders (maybe High Freq. Traders / Program Traders ?) and not by any Institutional Money
  • GLD (GOLD): same as in EEM despite the "baby" spike in Institutional buying last week

Conclusion:

THIS RALLY HAS NOT BEEN DRIVEN BY HEALTHY INSTITUTIONAL BUYING!!

......but IF the sentiment holds and the FED continues to provide the tradings desks with free capital anything is possible.......

This is cleary bubble territory which will end as all un-healthy moves do. The timing will be tricky because they try to suck everyone in. As stated last week this can continue longer although unlikely. The rally has to end on good news (like ISM etc.) , ie. it has to exhaust itsself meaning there simply will not be any buyers left that are willing to gamble. The above shows that we have plenty of Institutional money on the sidelines, but they let the "others" play......


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(*I have applied the Effective Volume concept on daily data with an objective to minimize potential information losses. Therefore we run it on various time series in order to achieve a consistent and coherent interpretation)

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