The 'Junk Stock' Rally

It’s been pretty widely reported recently that an unusually large percentage of the daily NYSE volume was the result of trading in just five highly speculative stocks namely Fannie Mae (FNM), Freddie Mac (FRE), Citigroup (C), Bank of America (BAC), and AIG.

To better visualize this I have plotted the combined daily trading volume of these stocks as a percentage of the total NYSE daily volume going back to 2001.

As you can see from the chart below (click for super-dynamic zoom-able version) the reports are accurate.

In fact, the latest results show that these five “junk stocks” account for over 18% of all daily trading volume on the NYSE and have recently accounted for as much as 40%.

Is this a sign of strength or speculation?

I suppose to answer that question one might ponder the fact that Fannie and Freddie are both failed government shams that are essentially insolvent and likely to be closed down and rolled by the creeps in Washington into some new farce while Citibank and Bank of America are likely only living by the good graces of the mark-to-“make believe” swindle… AIG… it’s just a plain old fashioned failure that’s being propped up by you and me.

click to enlarge

Comments

[KJP712:]

Money has been made trading these stocks.Who cares if they are junk?

Oct 21 03:14 PM

[Graham and ...:]

Heavy trading in these speculation vehicles reveal the true temper of the market. Good article.

Oct 21 04:18 PM

[Eric Boughton_:]

Speaking of a 'junk rally', here's a fact: had you purchased the lowest-priced decile of all Russell 3000 stocks as of March 9th, equal-weighted, you would have had a 423% return through September 30! No joke. Had you simply pulled all 3000 (roughly) tickers, sorted by closing price on March 9th, and bought just $100 worth of each of the 300 lowest-priced stocks, your $30,000 investment in this diversified portfolio would have been worth $157,000 on September 30. Regret, anyone? Anyone think there might be some short candidates on that list?

Oct 21 06:56 PM

[richjoy403:]

Frankly, I find the comments more interesting (and perhaps more useful) than the article.

Oct 22 08:09 AM

[George /Mis...:]

WHO DO YOU BELIEVE.
I AM EXHAUSTED BY ALL OF THE STORIES AND INFORMATION ( GOOD OR BAD) THAT IS PROVIDED BY MANY BY WAY OF STOCK ALERTS FOR (C) (CIT) (FRE) (FNM) (BAC) (AIG)
DOES ANYBODY REALLY KNOW. IF THESE STOCK REPRESENT APPROX 40% OF THE DAILY TRADING VOLUMES HOW IS IT POSSIBLE THAT ALL INDEXES ARE 50% HIGHER FROM THE MARCH LOWS. THE MATH DOES NOT WORK.
SOMEONE OUT THERE PLEASE EXPLAIN?????

Oct 22 07:13 PM

[jimmills:]

How is bank of america speculative stock??? you must be short this stock to say something like that.... they are running between 17-18.. almost all analyst say they are a strong buy... I just don't get your thinking on this....

Oct 23 09:35 PM