Dollar Volume, Derivatives, and Churn

09/07/2015 9:00 am EST

Focus: STOCKS

Alan Newman

Founder, Crosscurrents Publications, LLC

The investment market has been replaced by a trader’s market, cautions market timing expert Alan Newman, editor of CrossCurrents.

We routinely tally total dollar trading volume every month and each time we have done so, the number has run to a new all time record high.

The numbers are truly staggering and strongly imply professional participation on an awesome and historic scale.

For the first time in history, annual dollar trading volume is running at a rate of over $70 trillion or roughly $278 billion per trading day.

Compare the amount to the average $48.5 billion in GDP generated every day and it is easy to infer the primary business of America is stocks.

No wonder the economy is always suspect. It is not about generating sales of goods and services; it is all about the creation of wealth or at least the illusion of wealth.

The nature of the stock market has completely changed from an investment arena to a factory of churn.

For the 73-year period from 1926 to 1998, holding periods averaged 44 months and 25 days, clearly sufficient to presume the overriding theme was investment in the future.

We should also look to the post war years of 1946 to 1972, one of the greatest boom periods in the nation’s history as the average holding time for stocks ballooned to nearly 70 months.

The theme of investment is dead; the stock market favors only those who ply mechanical means of trade.

We expect the remainder of September to provide more evidence that the six and a half year bull market is over, complete, kaput, stick a fork in it...it’s done.

Despite tents being pitched at Dow 15,370 on August 24, this was never going to be just a four-day correction. We’re overdue for at least a 20% decline now, which equates to Dow 14,681.

A much better buying opportunity lies somewhere ahead and we are not holding our breath.

One look at the iShares US Financials (IYF) is enough to nauseate even the most seasoned observer and leaves us wondering whether a derivative problem is on the horizon.

Citigroup (C) gave up 22.7% in one month and came a whisker away from the January low, which we now believe is crucial support. On the upside, $58 should function as extremely strong resistance.

At least C has been able to trade above their ’09 and ’10 recovery highs. In all this time, Bank of America (BAC) was unable to best the ’09 and ’10 recovery highs.

BAC gave up 21% in the same span of time but took out the January low by a wide margin, putting the stock on a far worse footing than Citigroup. On the upside, $17.69 should be extremely strong resistance.

Is a derivative event unfolding? If these charts take out their lows, the answer is yes.

Meanwhile, the breakdowns in International Business Machines (IBM) and Wal-Mart (WMT) appear serious.

We also note the attempted recoveries in Amazon (AMZN) and Netflix (NFLX) and can only reiterate our belief that these two are the very riskiest of all traded issues.

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