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Speculative Juices Draining From The Market

March 12, 2009

 

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This is an abbreviated sample of a comment posted for subscribers

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Good Thursday morning...We begin the day with a flat reaction in the pre-market futures as some early weakness was overtaken by economic news that was a little better than expected for a change.

 

Last week, we looked at a chart from the InsiderScore.com service which showed that corporate insiders at S&P 500 companies were showing an extreme bias towards buying stock versus selling.

 

During the latest week, that skew in activity has broadened out, and is now less concentrated in large-cap stocks and is more evident in stocks comprising indices like the Nasdaq 100 and Russell 2000.  That has pushed the overall measure that we update weekly on the site to the third-most-extreme level we've seen.

 

 

The weeks of November 19th and 26th exceeded the current pace of buying vs. selling, but not by much.  And it's notable that the week of the 26th was a 30-year high.

 

While corporate insider volume has been expanding into technology and other sectors that hadn't seen much of it lately, traders in general have been focused more on NYSE-listed issues than ones listed on Nasdaq.

 

The chart below shows the ratio of Nasdaq to NYSE exchange volume that we update daily on the site.  I usually watch for the ratio to dip below 1.0 (more NYSE volume than Nasdaq volume) to signal an extreme in risk-aversion, and we haven't quite made it there.

 

Still, the chart below highlights other times since the bear market began that the ratio reached either the current level of risk-aversion (green arrows) and risk-taking (red arrows).  Not perfect, but it was a pretty good contrary indicator.

 

 

That risk-aversion can also clearly be seen in the level of volume in Over The Counter (OTC) volume.  These are also known as "pink sheet" or "penny" stocks because price quotes for them used to be printed on pink paper, and they generally trade for under $1.

 

By watching the volume of trading in these issues, we can get a pretty good handle on the speculative juices raging in the market.  If you take a peak at the total dollar volume in these stocks at the height of the 2000 Nasdaq bubble, it's clear that those speculative juices were flowing harder than tween spirit at a Jonas Brothers concert.

 

Not so much recently.  Just-released figures show that the total number of pink sheet trades stood at 321,000 in February, down from 650,000 a year ago.  And the total dollar value of those trades decreased to only $511 million, a third of what it was last year (and down from $28 billion in March 2000).  The current dollar volume is a new record low going back to 1995.

 

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