12/27/10…digging out

Bloomberg Quote of the Day: “It is amazing what you can accomplish when you don’t care who gets the credit.” – Harry S. Truman…and that is why nothing is getting accomplished in D.C. – except chaos! TB

Thursday’s volume of 617M shares was the second lowest of 2010. With tomorrow being the last day for T+3 settlement in 2010, we might have a new low for the year or at least a contender soon. If so, it will also be the lowest volume in decades. Stop and think what the means: with all the IRA/401(k)’s, hedge funds, derivatives, extended trading hours we still cannot do the volume we were doing twenty-five years ago or more??? Oh sure, we have those occasional record days but one should ask who is buying and selling stocks, and in that environment just what do the indexes mean? Are they of any value other than to attempt to divine a longer term trend…are there really longer term trends anymore?

Is the stock market the best place for your money?…or the bond market?

Commodities? How about ETF’s?

Last Thursday’s missive hinted towards ETF’s but TB left out an important caveat. As TB said There are some very fine ETF’s out there that track the indices well but there are some that are so speculative in nature that only experienced traders should use them and then only intra-day. The worst tracking ones appear to be ultra’s which employ leverage of two, three, sometimes more times leverage presumably as a hedge against your long positions…they also collect high fees. Then there are the commodities ETF’s that track a specific commodity like crude or an index and yet the correlation is not good. The Gold ETF is a hybrid that tracks the underlying commodity well but does it really? Does it lead it or lag it due to having to go out and buy…or sell…the change in position every day. If this is so, and we know it is, when speculators climb on board it causes the underlying gold to soar…or if they become sellers to plummet for multiple days as it catches up.

The point is to know what you own and not try to get ‘cute.’ It can be harmful to your financial well-being. Diversification is key and that should be a strong suit of ETF’s - just make sure it really is.

Look at the volume on the NYSE since 12/9, the last day with 1 billion shares trading before a string of weak days,

12/10 975M

12/13 963M

12/14 953M

12/15 1.11B

12/16 990M

12/17 2.02B – Quadruple witching! Highest volume since 6/25/10

12/20 829M

12/21 811M

12/22 784M

12/23 617M – 2nd lowest of 2010, 11/26’s 428M was THE low of year and 3rd lowest since the 12/24/09 319M day which was lowest in decades!

While T+3 can have big impacts on markets, coming as close to yearend as this one is and coupled with the low volume, it might produce just a whimper. Still, don’t ignore it as the impact could be substantial.

. . . - - - . . .    . . . - - - . . . (S.O.S.)

Hope you all had a wonderful holiday…although weird global weather patterns are doing as much as they can to disrupt it.

While Chicago had snow and the east coast suffered a major blizzard, it was beautiful in Minneapolis for Christmas, and TB’s birthday (30 degrees)…66th if you must know. Also, the west coast seemed to be in a drying mode.

Hopefully none of you will be too inconvenienced by the weather and will have a prosperous new year.

All the best,

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries...as he sees it...and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Copyright TBD Capital LLC, December 27, 2010.

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