Volume My Friend – Does it Matter?

Looking at the action on Friday, Thursday and Wednesday, I noticed volume was much lower than the drop day of March 6. Volume was up Friday over Thursday on the DIA  but we almost had a reversal in late day trading so I’m not reading that as super positive. The QQQ’s were different, where volume was higher Friday than Thursday with the index up less than 1/2%.

Low volume rises in the market are nothing new in this brave new world. Many break outs are sold heavily by traders (people taking their 5-15% pops and going home) as stocks with strong reports work hard to make the next move. eg FIRE, a high flier, is on its second attempt to break out from its breakout as insiders dump shares into the action (which is not necessarily a negative – insiders have to time sales smartly).

It was also another odd day when long bonds were up slightly as were stocks – as if bulls and bears are confused here. Reuters put out a decent summary HERE on the market. Reminding us that there is so much cash on the sidelines earning 0%, that people have to do something besides the bank with their money – perhaps that’s why buy the dip works so well.

Dot Com Reference?

Gold stocks are reminding me lately of the tech bubble inspired website “channeling stocks.com” with its catchy logo of “buy low, sell high, the same stock, again and again.” I never tracked how that worked out then but since January of 2011, gold stocks have repeatedly been “buy the dip sell the rip” type of stocks. For the last 15 months, each time the GDX would break above the 200 day moving average, it wasn’t too long before it would start heading down. In general, buy the dip is still working for many ideas but some stocks are breaking down on bad news, implied or otherwise (see GMCR).

Dividend stocks are picking up steam again – Verizon and AT&T, which is breaking out by the way (even after giving up $3B to DT and losing spectrum) as is Altria. Remember in 2011, dividends, MLP’s and bonds were a killer portfolio (Dogs of the Dow did 17+%!). If people get scared again, this will return which means keep your eye on large cap quality US dividend payers, MLP’s and various bond strategies for opportunities.

In My World

So what did I do recently? I added a couple of value stocks and put on some short term puts on a tech high flier that were inexpensive compared to the short term protection offered. Translation – I don’t want to be out of this market, but caution is much higher. I hold 2 fundamental positions, 6 discovery positions and 6 trading positions. Clients have similar positions except they don’t have much exposure to discovery type positions. (FYI – I reviewed my 3 investment categories on March 7 – you can read about them HERE)

This morning my review is going to focus on my usual small cap areas and creating a list of quality large caps that I might be interested in if the market dips – like HSY for example. I do have to review further though.

At the time of this writing, I or my clients own the following investments mentioned in this column: GDX, MO, VZ, T, AMLP

Note: this article is meant to be some helpful thoughts to share and not investment advice specific to you. Please consult your own advisor regarding investment and financial decisions. See our disclosures page