With stocks having been on such a tear, is there anyone left to own them?
Mike O’Rourke of BTIG argues that the numbers are deceiving, and that thanks to lower (relative) volumes, there’s still a lot of money that can go into equities.
One retort to our argument is that the S&P 500 has risen 17% since the end of August, which is a
move in the same ballpark as the Continuous Commodity Index. To counter that, below are a
series of charts comparing the cumulative year to date volume versus last year in Equities as
well as futures contracts on Treasuries, several Commodities, the S&P 500 and the Euro. Charts
1, 2 and 3 apply to the Equity markets. One can see how volume in 2010 has consistently been
below that of 2009 and in the past few months, the gap continued to widen. We believe this is
an indication that investors have not flocked back into Equities in the manner that a 17% rally
may indicate. The trends are similar in the S&P futures where e‐mini volumes in 2010 are on par
with 2009, but the large contract volumes in 2010 are well below that of 2009. With the
exception of Crude and Soybeans (where 2010 volume is on par with 2009), charts 4 through 13
all depict the same thing ‐ whether it is Treasury Bonds futures, Euro futures or any other
Commodity future, 2010 volumes are far out pacing 2009. That is why we refer to QE2 as a
distraction. This is where all the action has gone, but these are trades, not investments. Even if
they were investments, the price action will turn them into trades. We view the real long term
upside potential to be in Equities, where that prospect of record earnings gets enticing. Those
who focused primarily upon QE trades have already missed an impressive Equity move in the
past few months, but unlike many of the QE trades, Equities have not hit record levels. The
question is whether investors will rotate back to Equities after they pull the ripcord on
Commodities? We expect that faster money will look for the entry point to Equities because, at
the very least, they will want to be there before the vanilla flows reverse course after 3 ½ years
Here are a few of his key charts, which demonstrates the weak equity volume (which has been a well-discussed issue all year).
Now compare that to Treasury futures. Volume is way ahead of last year’s pace.
Here’s wheat futures:
And, of course, silver futures:
Bottom line, the money has been elsewhere, even if the gains are similar.
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