Institutional Traders Positioning In The Stock Market
Leonardo Barata | May 25, 2015 05:46AM ET
Stock indices continue their long bull market, fueled by low interest rates both in US and European countries. In Dow Jones (weekly), we can see that in October/2014 there was re-accumulation, as the prices were shaked-out and there was a volume spike. Large position holders (funds, banks, professional traders) need to buy when the market is correcting, as they need a large amount of sell orders to appear in the market, so as not to turn the price against them, and so they did.
However, after the strong rally that proceded, Dow Jones is now showing very high volumes again, but with little price increase. If the prices aren’t rallying on such high volumes, that means the activity going on is keeping the prices from advancing. If this was buying volume, why would the market be moving so sluggishly? What’s happening now it’s the opposite of what happened in October – institutional traders are selling, using the liquidity provided by uninformed traders who are buying for a myriad of reasons: economic growth in US (even though stock market movements precede economic activity, and not the other way around), continuation of low interest rates, missing out the bull market, among others.
In the daily timeframe the same conclusion can be drawn. The last rally, which took Dow Jones to new all-time highs, also showed low volumes and narrow range bars, which indicate there isn’t much buying interest.
DAX is also showing selling volumes, first in a daily narrow-range up bar with very high volume, and then on a wide spread down bar with high volume. As in Dow, the last rally is seeing low volumes.
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For the bull market to continue there either needs to be high volumes on new highs, marking renewed demand in the market, or another re-accumulation phase, after a correction. The interest rates are low and are fueling the bull market in bonds. But one historical fact about bonds is that even though almost every bull market in stocks happens after a bull market in bonds, not every stock market break is preceded by a bonds bear market.
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