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Thursday, August 12, 2010

THE BIG MONEY ISN'T BUYING THIS RALLY


To recap, a healthy bull market is driven by the buying power of mutual funds, hedge funds, and insurance company funds. These investors control multibillion-dollar portfolios. Only with strong buying enthusiasm from these folks can a real bull market flourish. Today's chart shows anything but enthusiasm…

Our chart displays the past six months of trading in the Dow Industrials investment fund (DIA). This is a basket of America's biggest, most important companies. Below the price chart, you'll find a window displaying the fund's daily trading volume. The red bars represent trading volume on days the fund declined. The gray bars represent trading volume on days the fund advanced. The taller the bar, the greater the volume.

As you can see below, trading volume boomed during the May selloff (A)… and selling power remained strong through the final tough days of June (B). Now note how the recent rally has come on tepid volume (C). Some of this "where's the big money?" action can be attributed to money managers taking their summer vacations. But even taking vacations into account, this is a bearish lack of buying interest.

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