Presented by Nick Santiago January 30, 2012 03:32PM
Nearly every trading session over the past month the major stock indexes rally after an initial morning decline. Some investors may view this action in the market as a sign of strength, however, the trading volume remains extremely light. Light volume will usually indicate a lack of institutional participation, or conviction by the big boys. This stock market looks to be moving higher by a handful of big firms that have the means to buy every market dip. Some traders and investors believe that the central banks are basically telling the market moving firms to be in risky assets; they have promised to keep rates at extremely low levels for lengthy periods of time. It is important to note that the federal funds rate has been at zero to a quarter percent since December 2008.
Just last week, the Federal Reserve Bank said that the federal funds rate (overnight lending rate to the large banks) should remain at zero to a quarter percent until late 2014. While many investors view this action by the central bank as a sign to buy stocks other view it as a sign of weakness in the economy. Either way, the central banks are practically begging investors to buy stocks and commodities.
Here is what traders need to know, when trading volume has returned to this market it has most often been on the sell side. If you look at a chart of the S&P 500 Index the majority of the volume occurs when major stock indexes decline. This stock market has been like a yo-yo since early 2010, it will dip on heavy volume and then rebound on light volume. Traders should not expect things to change anytime soon as this pattern is likely to repeat itself throughout 2012.
Just last week, the Federal Reserve Bank said that the federal funds rate (overnight lending rate to the large banks) should remain at zero to a quarter percent until late 2014. While many investors view this action by the central bank as a sign to buy stocks other view it as a sign of weakness in the economy. Either way, the central banks are practically begging investors to buy stocks and commodities.
Here is what traders need to know, when trading volume has returned to this market it has most often been on the sell side. If you look at a chart of the S&P 500 Index the majority of the volume occurs when major stock indexes decline. This stock market has been like a yo-yo since early 2010, it will dip on heavy volume and then rebound on light volume. Traders should not expect things to change anytime soon as this pattern is likely to repeat itself throughout 2012.
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