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Float Shrink a Good Stocks Sign

The recent spate of M&A, as well as share buybacks and such, have provided another in a series of mildly bullish signs for stocks.

NYSE trader
Oliver Quilla for CNBC.com
NYSE trader

Even as the market was getting its butt kicked Tuesday, data from corporate America indicating $32.3 billion in float shrink over the past week helped provide at least some balm. Float shrink means there are fewer shares on the market. Assuming demand stays the same, a shrinkage in float usually provides upward pressure for stock prices.

The move, along with a handful of contrarian positive indicators, has turned market research firm TrimTabs “cautiously bullish” on the market. The firm cites sharp increases in equity fund outflows, short interest and bearish sentiment as indicators for why it believes the market could get a bounce.

TrimTabs cites four big moves that contributed to the float shrink: The Sanofi-Aventis $16.6 billion offer for Genzyme; 3G Capital’s $2.5 billion purchase of Burger King; 3M $550 million purchase of Cogent; and Hewlett-Packard’s victory in the $2.4 billion bidding war for 3Par.

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