Tuesday, August 26, 2008

Low Volume Brings On Big Swings - Financials Fall - Fannie and Freddie Up

On Monday all three major indices fell on very light trading volume. The trading volume on the New York Stock Exchange was about 847 million shares which is well below last year's estimated daily average of roughly 1.90 billion. On the NASDAQ only about 1.42 billion shares traded versus last year's daily average of 2.17 billion.

The reason this is important to note is that light trading volume usually brings wider swings in the market. Stocks can be swayed a bit more due to the lack of activity thus buying boosts it more than usual and selling hurts it more than usual. As Reuters said, "The three major indexes fell about 2 percent each, wiping out gains booked on Friday, though traders said thin, end-of-summer conditions may have exaggerated the moves."

The financials helped push the market lower as credit concerns remained in focus. American International Group (AIG) fell on a price target cut and earnings estimate by Credit Suisse. This was followed by Lehman (LEH) falling on comments that the Korean Development Bank's interest in acquiring the investment bank was waning.

Strangely, after being the albatross around the neck of financials for weeks, Fannie Mae (FNM) and Freddie Mac (FRE) were among the few gainers on the day. The stocks moved higher to reverse the large losses suffered last week on speculation a possible government bailout could wipe out shareholders. Freddie shares rose 17.1% on news of solid demand for its $2 billion debt sale, and Fannie moved higher by 3.8%.

On Tuesday, the S&P Case-Shiller home price index report at 8:30 am EDT, July new home sales report at 10:00 am EDT, and consumer confidence report at 10:00 am EDT will be released. Additionally, the continued turbulence between Russia and Georgia still weighs on oil and the market. Prior to Tuesday's opening, the futures were showing a flat opening.

Source: Reuters

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