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Volume figures aren't that confidence-inspiring
The bounce in stocks over the past two weeks, coming as it has in decent volume of around $1.5b daily. has certainly been welcome. Most of the TRs I speak to have reported improved business and are grateful for the improved conditions after more than a year of poor activity.The rebound has come because oil has risen sharply (I'm still unsure as to how higher oil prices can be good for the global economy and stocks, just as how lower oil could be bad...but hey, what do I know?), commodity prices have risen and the PBoC cut its bank reserve ratio requirements. Personally I don't think central bank intervention will have any lasting impact no matter what is done and where, which leads me to ponder how long the rebound in stocks can last. Two indicators that don't fill me with much confidence are total volume and the percentage of business that is done in blue chips.
When the STI was falling to within range of 2,500, about 70-75% of total volume was done in the 30 STI components. Now that the index is hovering around 2,800, that proportion is down to the low 60s. The average value per unit traded was around $1 at the start of the year, now it's around $0.50. This can be taken to mean that whereas the bulk of turnover was being done in the blue chips - which was the case for the past 9-10 months - it's now being done in low-priced issues. Put differently, the market's profile has shifted from quality to, let's say, lesser quality. Is this necessarily bad? I'm not 100% sure but there is a school of thought that if the pennies are moving more than the blue chips, then it may be time to exit the market.
Also, the absolute amount of dollar business has been dwindling - last Friday (4 March) it was $1.75b, on Wednesday March 9 it was $1.2b. As I write this on Thursday 10 March, it looks like total business will be under $1b. If this decline continues, we could soon be back to the same dreary, listless and illiquid sessions that marked almost all of 2014 and 2015. Hopefully this won't be the case.