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Typical Slow Summer or Something Darker?

Equity trading activity this August is on pace to be the slowest since 1999, according to Bespoke Investment Group. In the first 16 trading days of August, the average daily volume of Standard & Poor's 500 Index shares has been 818 million shares a day, well below the last two years and almost half the 1.6 billion that changed hands during the same month in 2007.

There’s a tendency to write off what happens to the market in August, which is typically slower than most other months, as investors both professional and retail go on vacation. But does the barren trading taking place this month signal something more than just junior traders at the controls?

To be this slow relative to the last three years is one thing, but to be the lightest since 11 years ago is quite a feat given the technological trading advances on the now publicly traded exchanges, as well as the explosion in high frequency trading by hedge funds. Transactional volume on Wall Street has tripled over those 11 years even though the stock market has effectively gone nowhere, according to Alan Newman, author of the CrossCurrents newsletter.

Newman and other strategists believe that investors, especially those whose retirement accounts were decimated by the housing crisis, may be abandoning equities for good. So if hedge fund managers and the black boxes they operate are on vacation this month, then there is no one left who wants anything to do with equities.

Look no further than record low in 2-year Treasury yields today. If investors are more inclined to tie up their money for two years in something yielding less than half of one percent than an IBM , with tons of cash and a 2 percent dividend yield, then something else is at work here, analysts said.

“If the market is going to ever hit new price highs, it is going to be heavily reliant on individual investors putting their money into mutual funds,” said Newman in a note yesterday. The strategist cited the fact that mutual funds are nearly fully invested right now, during a period of massive outflows from their funds.

“The public has gotten the shaft from Wall Street, from the SEC, from short oriented hedge funds and now, from high frequency trading,” said Newman. “The lost decade has effectively obliterated the notion that the long term will bail investors out.”

Tuesday was an exception as volume was heavy after economic data showed a record 27 percent plunge in July existing home sales. The Dow Jones Industrial Average fell almost 200 points at one point.

So maybe investors haven’t abandoned the stock market completely. They just come back in every once in a while to sell what they have left.

For the best market insight, catch "Fast Money" each night at 5pm ET, and the "Halftime Report" each afternoon at 12:30 ET on CNBC.

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Trader disclosure: On August 24th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour owns (AAPL), (BAC), (GE), (POT); Cortes is long (FCX); Cortes is long (SFD); Cortes is long (BHP); Cortes is long Crude Oil; Cortes is long Australian Dollars; Finerman’s firm owns (BAC); Finerman’s firm owns (JPM); Finerman’s firm owns (BKS); Finerman’s firm owns (RIG); Finerma’s firm owns (BP); Terranova owns (AXP), (C), (BMO), (V), (POT), (OXY), (GLD), (FCX), (APA), (SU), (XBI), (MRVL), (TBT)

For Tim Seymour:
Seygem Asset Management is short (FCX)

For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
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For Patty Edwards
Edwards owns (BAC) for clients
Edwards owns (C) for clients
Edwards owns (CAT) for clients
Edwards owns (FCX) for clients
Edwards owns (GE) for clients
Edwards owns (GLD) for clients
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For Joseph Parkhill
Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Dollar General Corporation.

Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: Dollar General Corporation.

Morgan Stanley & Co. Incorporated makes a market in the securities of Dollar General Corporation.

Barry Ritholtz
***No Disclosures***

Jeff DeGraaf
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