Markets See Rising Volume and Volatility

Sunday, July 29, 2007 | 09:10 AM

If you look in last week's credit-driven market dislocation, one small tidbit has peaked through the wreckage: Investors will be surfing choppier markets, as we have seen big increases in volume and volatility.

This is not likely to wane anytime soon.

An interesting article on this exact subject was in the Saturday Journal. Greg Zuckerman took a surprisingly sanguine approach to this significant change in market demeanor:

"Rising volatility, along with heavy trading volume, isn't necessarily troubling. There have been similar recent periods when volatility, or sharp moves in the prices of securities, soared to these levels, and each time markets rebounded sharply. And a surge in volume doesn't indicate which way stocks are headed next.

It feels worse this time around to some, though, because it has been so long since they had to deal with these kinds of jumpy markets."

For all I know, he may be precisely right.

However, whenever a prior  element in markets shifts dramatically, it sets my trading antennae all aquiver. And when that element was a factor in the bull argument -- lack of volume meant the market was being driven by the so-called "smart money" -- it is doubly noteworthy.

What might be the risks to this increase in volatility and volume?

"Just as important, potential dangers are higher -- so many traders have been using heavy leverage, or borrowed money, which can amplify gains -- and losses. As July comes to a close, more traders fear that hedge funds will start selling to meet possible margin calls from lenders or redemption requests from their investors.

And it is getting harder for some large investors to get certain trades done in parts of the bond market, because their brokers are wary of buying riskier debt amid worries about fallout from the difficulties of subprime-mortgage borrowers."

Whoops! Not very smart after all.

While low volatility often means complacency, it can also suggest a lack of retail traders. So this element is far from conclusive. 

Great chart, tho:


graphic courtesy of WSJ


Investors Surf Choppier Market
Greg Zuckerman
WSJ, July 28, 2007; Page B1

Sunday, July 29, 2007 | 09:10 AM | Permalink | Comments (10) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Somthing that might contribute to the volatility is this little tidbit concerning American Home Mortgage (in case anyone missed it):

posted Friday night at 10:41 p.m.

Posted by: GRL | Jul 29, 2007 9:52:08 AM

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