Following up on my post this AM:
Here's another reason the stock market has been tough for fundamental investors.
Based on trading data from August, only a handful of stocks are actively trading, and these are probably dominated by high frequency traders (HFT) using programmed trading algorithms. Meanwhile, the rest of the market mostly just followed the overall trends through the use of index funds and exchange-traded funds (ETFs).
Here's a quote from the article (courtesy of the blog Zero Hedge):
The latest Abel/Noser analysis has been released and according to the data analytics firm just 112 stocks now account for half of the day's volume, the top 20 stocks account for 26% of all domestic volumes, and the first 1,029 stocks are responsible for 90% of all volume, meaning the remaining 17,349 account for just 10% of all dollar traded. These are also the stocks where HFT will never tread, so if anyone wishes to avoid the HFT marauders, just stay away from the top names.
The blog goes on to conclude from this trend:
As ever more of the volume is concentrated among fewer and fewer stocks, it is certain that one day, when a top 10 name crashes, will crash the the entire market, which continues to trade near record-high implied correlations.
I don't know if I agree with this pessimistic conclusion, but the figures are certainly unsettling.
112 Stocks Now Account For Half The Day's Trading Volume
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