Debunking the Myth Volume Does Not Matter ~ The Risk Averse Alert

Wednesday, April 20, 2011

Debunking the Myth Volume Does Not Matter

Word has it that, the trend toward a lower volume of shares exchanged does not matter. Yet how strange is this conclusion when the Dow Jones Industrials Average is leading the market higher!

You mean to say that, an underlying current of fear displayed by a bid focused on the top heavy paragons of corporate America — so loaded with dead wood that, smoking is no longer allowed on the premises — should not find some measure of the same fear displayed by increased exchange of issues not so well-positioned to profit from globalization? Being not so attractively disposed, shouldn't these issues experience increased selling pressure?

Were we in the midst of a bull market, then right fear underlying today's bid on slow moving Titanics should bring increased selling of these, as well as the many smaller ships in the ocean, and yet despite this, still find all boats rising. None of this healthy dynamic has existed since March '09 bottom. Not even the Dow 30 has seen an increase in shares exchanged as the index has risen over the past two years. Rather, here and everywhere else is utter complacency being revealed by diminishing volume of shares exchanged as the market continues its advance.

Holding complacency in place has been the CME-manufactured bid — a dynamic whose persistent unleashing over the past two years brings neither increasing demand, nor increasing fear. Something of the character of this dynamic was revealed today. We saw no follow-through to today's strong, CME-driven open, nor was any fear registered amidst increasing confirmation that, margins are collapsing. That complacency lives is the only thing one can rightly conclude.

Volume matters. Its decreasing trend since March '09 bottom rather suggests that, the largest holders of equity are weak hands, no doubt massively over-leveraged, whose position presently is being given a pass, yet whose posterity is entirely in doubt, as capacity to sustain fictional values on equity capital backing leverage meets collapsing margins brought about by insane policies venturing to back a mountain of mis-priced risk with but more mis-priced risk issued by lenders of last resort.

Promoters of such sophistry as in the recent past explained rising values of assets of all sorts by citing anything but an unsustainable credit bubble blown in the church of Adam Smith's leveraged Ponzi scheme are, of course, proven prone to fantasy such as would claim that, declining volume of shares exchanged while stock prices advance is circumstance possessing no foreboding consequence. The likes would better consider what might happen when power to extend the pass presently being given what effectively are insolvent zombies is no longer possible. A proper conclusion would justify prospect for a spectacular avalanche of selling — relentless, as well — given today's plain lack of expanding interest in the riskiest financial asset of all.

Indeed, the persistence of diminishing volume of shares exchanged as the market's levitation has extended more likely suggests the market's collapse will be nothing short of devastating...

Fast Money
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