The message of today's Market Notes: The "big money" needs to show up… and it needs to show up soon.
A healthy bull market is driven by the huge buying power held by mutual funds, hedge funds, pension funds, and insurance company funds. These investors control multibillion-dollar portfolios… they are the "elephants" of the stock market. Even a private investor with $10 million is a mouse by comparison. Only with strong and ongoing buying enthusiasm from the elephants can stocks climb higher. Now, here's where it gets worrisome…
Today's chart shows 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. Monitoring trading volume is how we track the elephants.
As you can see, the period of advancing prices during March and April was marked by "ho hum" trading volume (A). May's big selloff was marked by huge trading volume (B). Investors were dumping stocks with much greater enthusiasm than they were buying them. Now notice that each rally since has come on weak volume (C)… while each decline came on higher volume (D). This is a troubling lack of interest from "big money" investors. This "weak buying volume, strong selling volume" trend needs to change if stocks are to rally into year end.
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