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Higher Volume Indicates Push Toward Turning Point

Stronger volume in stock trading Friday could raise hopes that the eight-day blowout on Wall Street is pushing toward a capitulation bottom.

NYSE traders
AP
NYSE traders

Over the past week the stock market has posted its biggest drop ever, tumbling some 18 percent and triggering angst and despair among both investors and traders on the floor.

The powerful selloff abated Friday, and there also was a bit more intense volume accompanying it: close to 3 billion shares trading hands, nearing what most experts consider enough for capitulation.

"You really just want people to say, 'I can't take it anymore,' and I think we're getting to that position," said Quincy Krosby, chief investment strategist at The Hartford. "Selling begets selling, that's what happens, until it kind of washes out, until the last seller comes in and says, 'That's it.' Then there's kind of an eerie quiet."

Krosby said that despite Thursday's washout, in which stocks across the board lost about 7 percent of their value, volume was too thin. Total market volume was about 1.8 billion shares, and she would expect a number closer to 2.5 billion to 3 billion to see a true capitulation.

"You'd like to see more selling," Krosby said. "That's something that you look for--really, really heavy selling and you didn't have that yesterday and you didn't have that in many of the really strong down days."

While hedge funds and industrial investors have been bailed out of positions, individual retail investors have still not reached the severe panic point.

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"We're seeing volatility right now that's really starting to freak out the investor for sure," Ben Lichtenstein, president of Traders Audio, said on CNBC. "Once the investor, the normal, everyday-type investor starts to see his original investment start to decrease, that's where the fear-type selling could kick in."

Some were unsure just where the capitulation point could be found.

"I think no one knows where the bottom is" and the market hasn't yet seen the kind of trading that indicates capitulation, BlackRock Vice Chairman Bob Doll told CNBC. "Often you see double, triple normal volume and we've just not seen that kind of capitulation yet."

But while few if any were using the term "capitulation," there certainly was talk of liquidation.

"I have a hedge fund that's up 40 percent this month but I question whether I have a future or any of my peer group have a future," Hugh Hendry, Partner and Chief Investment Officer at Eclectica, told CNBC. "The only defense to your portfolio is not fundamentals. The only defense left to investors this day is to sell their assets; this is a liquidation."

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