Low Volume Days: The Cat's Away But Will Mice Play?

Catherine Holahan
Wednesday, 29 Dec 2010 | 11:39 AM ET

“When the cats away the mice will play.” The saying may be cliché, but it holds true for the markets during the last days of the year, says Todd Gordon, Aspen Trading’s co-head of research.

Most hedge funds and professional investors have essentially closed-up shop – choosing to protect year-end profits and stay on the sidelines until volume comes back into the markets, says Gordon. Trading volume has been around half of its average levels thanks to the U.S. holidays and heavy snowfall in the North East.

The absence of the big cats, so to speak, creates opportunity for investors that want to get rid of some big positions without having competitors jump on board, said Gordon. “The pros are out,” said Gordon, adding “Did people take this opportunity to dump some big bond positions?”

Short Hills Capital’s Stephen Weiss also was watching for anomalies amid the light trading.

It is easier for bonds or single stocks to have big moves when fewer investors are around to take the other side of the trade. “We will get back to reality next week,” said Weiss. He cautioned investors from trying to ride light volume momentum plays. Some of his hedge fund friends deliberately remain around in December to react to swings stemming from light volume.

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