The Supersonic Stock Market

The stock markets have gone supersonic, literally, as in above the range of hearing:  high frequency, low volume.  The details are really grim:

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. And since the last time we did an update, there have been some notable changes in the top 10 most traded names: in June, courtesy of the GOM catastrophe, BP and Exxon were solidly in the most traded stocks. Since then they have fallen way down in the listing, having been replaced with two other M&A candidates, HP and Potash, in 7th and 10th place, respectively. Intel has also done a great job of getting raped daily by HFTs, moving up from 19th place, to 8th. Yet not surprisingly, as the total volume of shares has fallen off a cliff since June, the 16th most active stock, Google, just barely makes the $1 billion in principal traded day cutoff at 16th place, while in June, all of the top 20 names were trading above $1.2 billion notional daily. And once again, just like every other month, the most actively traded security continues to be the SPY. 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.

And a lot of that is coming from the fact that only the Big Casino investors are left.  Everyone else has gotten out of the market, particularly hedge funds.  Outflows from the stock market are reaching critical levels.  The Fed is inflating the balloon as fast as it can, because at this point any sort of real downtick to the market is going to be a 400 point drop.   We're approaching maximum melt-up territory here.  Treasury keeps dumping in action to keep the Dow going up and the few folks who are left are following along.  Everyone else is off the roller coaster or worse, playing buy and hold.

The Fed's got to keep the markets going until Election Day.  Then again it was just about this point two years ago that John McCain lost the election so who knows.  If things get out of hand and the market breaks, well, all bets are off.

It's only a question of when the hammer falls.