OP: Spring Break? Low Market Volumes Continue

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Chart of the Day

“Credit markets have yet to signal any type of impending weakness” ahead for U.S. stocks, according to Ian McMillan, a market technician at Client First Tax & Wealth Advisors. McMillan made the comment in a Twitter post last week that compared the S&P 500 Index with the yield gap between some of the lowest-rated high-yield bonds and Treasuries. This week began with the gap for the Bloomberg Barclays Caa U.S. High Yield Index moving to its narrowest level since July 2018. A widening of high-yield spreads would be a caution signal for stocks, he wrote.

Our View

Lowest Stock Market Volumes Of The Year

The NYSE and Nasdaq volumes started to fall last week and fell to their lowest levels of the year on Monday and Tuesday. You can listen to anyone you like on this subject, but I know the real reason; spring break goes from the middle of March to April 14th. 

The sidewalks on Atlantic Ave in Delray Beach are packed with hundreds of people going to the beach. Lets face it, it’s been a rough year for a lot of folks and everyone I talk to says the same thing: “it’s great to be out.” 

The other part of the low volume is the S&P and Nasdaq need to do a little repair after a huge rally. Sell off a little, make a low, back-and-fill and then race to new highs. 

One subject I do like to talk about are the “market timers” and their newsletters. 

Back a few months ago when the rotation was out of tech and into value stocks, almost everything they wrote was bearish tech and now they are bullish. There is a very basic theme here and you do not need a PHD to understand it. 

In a nutshell, the Fed and the U.S. government are supporting the stock market with trillions in stimulus. 

Well-known investor Marty Zweig was a legendary trader and said traders need to follow the price and trend. Zweig coined the phrase “Don’t fight the tape” and “Don’t fight the Fed.” 

The PitBull was friends with Marty Zweig and lived below him on Park Ave in New York City. Despite many thinking the “don’t fight the Fed” line came from the Fed’s quantitative easing programs during the 2007 credit crisis, I actually heard PitBull tell me this back in the late 80’s. 

I have a hard time following the rules. Sometimes I add to losers and hold too long and other times I get out of a winning position too soon. I have posted my floor trading rules several times, but below are Marty Zweig’s rules and I think this is something everyone should give a good hard look at:

1. The trend is your friend, don’t fight the tape.
2. Let profits run, take losses quickly.
3. If you buy for a reason and that reason is discounted or is no longer valid, sell!
4. If the values don’t make sense, then don’t participate (2+2=4).
5. The cheap get cheaper, the dear get dearer.
6. Don’t fight the FED.
7. Every indicator eventually bites the dust.
8. Adapt to change.
9. Don’t let your opinion of what should happen bias your trading strategy.
10. Don’t blame your mistakes on the market.
11. Don’t play all the time.
12. The market is not efficient but it is still tough to beat.
13. You’ll never know all the answers.
14. If you can’t sleep at night, reduce your positions or get out.
15. Don’t put too much faith in the “experts”.
16. Don’t focus too much on short-term information flows.
17. Beware “new era” thinking, i.e. “it’s different this time because…”.

Our view is this: The overall tone of the ES remains firm. When the ES sold off late in the day, the volume was so low I got long in the ES and NQ. I still think the same thing — some consolidation at lower prices and new highs. 

Like I said, I have been trying to avoid selling the rallies and stick with the buy-the-weakness trade. However, when the NQ was at the highs of the day, I told the chat room that it was not going to stay up and that the ES and NQ were going to pull back. I also said to try and avoid the middle of the day trade, as it turned out to be a choppy mess with the Fed. 

I still think 4120 is on TAP. 

Danny Riley is a 39-year veteran of the CME  trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.

As always, please use protective buy and sell stops when trading futures and options.

_{Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Decisions to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS}