One of the themes of the latest bull run in stocks has been the lack of volume.Low volume, as Doug Short describes it, “doesn’t offer strong confirmation.“
Bruce Krasting thinks that it means there are people on the sidelines waiting for a reason to sell, and at the first sign of bad news, things could turn ugly quick.
Jim O’Neill, chairman of Goldman Sachs Asset Management isn’t quite as pessimistic. His thinking is quite the opposite of Krasting’s. O’Neill believes that low volume reflects investors with cash on the sidelines who are just waiting for a better reason to buy. This is a sentiment recently shared by BlackRock’s Bob Doll.
And this pent-up buying pressure could be bullish for stocks.
From Jim O’Neill’s latest Viewpoints:
While many bears cite the lack of daily trading volume as a sign that the market lacks real conviction about these positive signs, it can also be argued that this reflects just how many investors have abandoned the equity culture and can still return. Amongst the usual array of interesting snippets, I was attracted to an FT article Tuesday entitled, “Big British funds cut UK stocks ownership”. The piece suggests that these funds own less than 9 pct of their home market. I hear similar things everywhere in the US and Europe. By coincidence, I spoke to a group of UK pension fund Chairs that same morning and goaded them up to get their buying boots on. My confidence in equities was further boosted after a breakfast with a hedge fund pal of mine who told me he had decided that the ERP was so high at the end of last year that he put all of his devoted family savings into equities. He is one of the most thoughtful – and in recent years, successful – hedge fund investors I know.