Food for thought

MMC on

John Bogle yesterday quoted some amazing figures.

Over 50% of the daily volume in the markets is due to Day Traders (holding the stock from 3 minutes to six hours).

SPY has a turn over rate of 6,000x a year! This is similar for most ETFs as they trade just like a stock (calls, puts, longs, shorts, margin, etc).

I know that I'll look at volume indicators with a jade eye and view SPY for what it is - a Green Felt trading position.

Malcolm
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Dan Hess on

Malcolm

Yes there are a lot of shorter term traders in the market who cause a
lot of the buys and sells on the market. I attended a semianr put on by
my broker TDAmeritrade a while back. One of the things the speaker
indicated was that 75% of the TDAmeritrade trades were done by short
term traders.

Before you discard the value of volume consider looking at volume in
conjunction with price movement. Looking at a stock that has a large
decline and along with the decline also has volume considerably above
its daily average volume may indicate some of the big boys may be
selling. Conversely when a stock price rises along with abnormally heavy
volume it may be a sign of big boy buying. While we may sometimes
question the wisdom of big boy buying or selling the fact is the large
buyers or sellers do significantly move stock prices.

When I see a stock that has volume of over 200% of its normal volume I
view this as a signal to try to find the cause.

Bogle has been anti ETFs for quite some time and it was not until he
left Vanguard they decided to get into the ETF business. ETFs do
provide the capability to quickly and easily make short term decisions
and go long or short the market on some fact such as Bernanke announcing
extending QE or a statement by the EU on monetary policy.

We now also have High Frequency Trading (HFE) that means high speed
computers are used to make trades at microsecond speeds that can be
profitable at less than a penny due to the high volume and frequency
they can be done.

So a constant stream of new products like ETFs along with advances in
technology have significantly changed the way the market works but I am
of the view this short term noise should not be be of significant for a
longer term investor. For a shorter term options investor it is more
important.

Dan

On 2/13/2013 12:44 PM, MMC wrote:
> Malcolm
> Sent from my Communicator

Malcolm Myles on

Hi Dan,

Yes on all your comments. Invest with the Tides, enter and exit with the waves, ignore the ripples.

What I'm concerned with is the huge amount of money pouring into ETF which may explain our current nose bleed heights in the Market. Does the majority of investors know that SPY has a 6000x turn over when they put money into the product? Do they care? I don't know if it is bad or good, it is what it is that's for sure.

Bogle's an interesting duck. I've read some of his books, rants, but find myself in agreement that long haul investing is the way to build lasting wealth in the Market. As I've started writing calls and puts, I find that I'm more aware of the ripples and struggling to understand the affects they have on my Tidal investing program.

I won't disregard volume, but I'll definitely look at volume with more understanding and consider ETFs as liquid plays in the Market.

Malcolm

On 2/13/2013 10:22 AM, Dan Hess wrote:

Malcolm

Yes there are a lot of shorter term traders in the market who cause a lot of the buys and sells on the market. I attended a semianr put on by my broker TDAmeritrade a while back. One of the things the speaker indicated was that 75% of the TDAmeritrade trades were done by short term traders.

Before you discard the value of volume consider looking at volume in conjunction with price movement. Looking at a stock that has a large decline and along with the decline also has volume considerably above its daily average volume may indicate some of the big boys may be selling. Conversely when a stock price rises along with abnormally heavy volume it may be a sign of big boy buying. While we may sometimes question the wisdom of big boy buying or selling the fact is the large buyers or sellers do significantly move stock prices.

When I see a stock that has volume of over 200% of its normal volume I view this as a signal to try to find the cause.

Bogle has been anti ETFs for quite some time and it was not until he left Vanguard they decided to get into the ETF business. ETFs do provide the capability to quickly and easily make short term decisions and go long or short the market on some fact such as Bernanke announcing extending QE or a statement by the EU on monetary policy.

We now also have High Frequency Trading (HFE) that means high speed computers are used to make trades at microsecond speeds that can be profitable at less than a penny due to the high volume and frequency they can be done.

So a constant stream of new products like ETFs along with advances in technology have significantly changed the way the market works but I am of the view this short term noise should not be be of significant for a longer term investor. For a shorter term options investor it is more important.

Dan

On 2/13/2013 12:44 PM, MMC wrote:

Malcolm
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