I think the huge volume is not necessarily indicative of net buying or selling.
Because of the attractive volatility and the availability of leveraged vehicles even for individual sectors, a lot of daytraders (hedge funds and retail traders) are in the market and are trading more frequently during the day than before. Case in point :SKF (the ultrashort financials ETF) is already one of the most actively traded ETFs out there. Also, due to the reasons everybody knows, there is more risk in the market, which translates into a reluctance to hold overnight positions. Those who would be longer term traders are now short term position traders and daytraders.
I'm also guessing that liquidity is actually scarce and that shorts and daytraders are the only sources of liquidity here. Those seeking to exit huge long positions can then do so under the cover of volatility. The intraday swings are slowly getting bigger.
I think it was Dennis Gartman(not completely sure on this one, somebody on TV though) who said that the wild intraday swings would not continue for much longer. The markets would calm down once a clear trend got established even if it was to the downside. And that is a possibility. Once the Boyz use the liquidity provided them by central banks to "manage" their riskiest positions and then position themselves for the next trend (perhaps a downtrend), the markets may indeed calm down.
But there is another possibility. And that involves liquidity remaining scarce so that daytraders continue to be the main source of liquidity. If so, to keep "us" in the game, the expansion of intraday range may continue. As traders, we just cannot shirk away from such amazing intraday volatility. We ae drawn like moths to the flame. 100 point up or down days already became 200 point up or down days became 300 point up or down days. So this scenario would project 400 point and even 500 point up and down days in the near future. No need to add what happens at the end of this volatility up-spiral. Its obvious.
I just posted the SDS chart before read this... but what you said goes along with it too...
SKF... its a SHORT financials fund. and now compare it to LONG financials fund. Why are the SHORT funds getting so much attention and volume ? Whats the psychology here ? Maybe it is bullish from contrarian point of view. Everyone wants to trade SHORT funds.. volume in long stuff funds is 10 times lower. Interesting isn't it ?
How to read this ?
As for daytrading I actually prefer to do less daytrading in the high volatility environments. Too easy to get chopped up in pieces with high leverage instruments like futures. But I doubt that daytraders are the ones moving so many shares across the board in this market.
I said it several times before, but I think there is enough of liquidity there... and instead of going into CDO's and CMO's its now trying to find new places to go. And stocks look like an attractive place for the liquidity to be.
Edited by ogm, 11 August 2007 - 09:16 AM.