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Strange but True: Yesterday’s Volume Highest in Six Months

|Includes: C, SLX, SPY, TLT, SPDR Homebuilders ETF (XHB)

Technical Action Yesterday

Technical action by S&P 500 stocks was bullish again yesterday. Another 34 S&P 500 stocks broke resistance (too numerous to include here) and none broke support. Most of the breakouts occurred in early trading. The Up/Down ratio increased from 5.09 to (379/70=) 5.41.

Technical action by TSX Composite stocks was mixed yesterday. Four TSX stocks broke resistance (Aeroplan, Cameco, Suncor and Talisman) and three stocks broke support (Calloway REIT, Saputo and Transat). The Up/Down ratio dipped from 4.56 to (143/35=) 4.09.

Strange, but true

Volume on the NYSE jumped to a six month high yesterday. Volume in S&P 500 stocks fell yesterday to the second lowest level during the past six months (including the day before the Thanksgiving Day holiday). What’s going on?

Approximately half of the volume on the NYSE yesterday happened in one stock, Citigroup. Much of the volume came from sale of the U.S. government’s remaining shares of Citigroup. Volume in Citigroup escalated near the close when additional shares of Citigroup in the public realm required indexers to buy the stock at the close (e.g. funds that track the Dow Jones Industrial Average). The buying in Citigroup also required the indexers to rebalance positions by selling other stocks that are part of the Dow Industrials. Net result was weakness by the Dow Jones Industrial Average in the last hour of trading yesterday.

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Interesting Charts

Another reason for weakness in U.S. equity indices and commodities was late strength in the U.S. Dollar Index. Despite late strength, short term momentum indicators for the U.S. Dollar Index continue to trend lower from overbought levels. A MACD sell signal was recorded yesterday.

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Economically sensitive sector ETFs broke key resistance levels yesterday.

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The Federal Reserve currently is losing the battle with the bond bears. Purchases of U.S. Treasuries by the Fed through QE II were expected to lower yields and raise prices. However, action by Obama and Congress yesterday at least temporarily delayed that possibility. Yesterday, long term U.S. Treasury prices and related ETFs broke support on higher than average volume to reach a six month low. Weakness in bond prices (i.e. higher yields) was a contributing factor to strength in the U.S. Dollar yesterday. Will the Fed’s consistent purchases of Treasuries eventually have a positive impact on long term Treasury prices? If it does, equity markets will move significantly higher. Stay tuned!

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