The volume of stocks being traded is the lowest in years. Things are so bad that big brokerage firms are laying off hundreds of employees and smaller firms are simply closing their doors. For those who are still interested, what is the best way to approach trading stocks in a low volume market? A few clues may be found in the reasons that trading volume has fallen so dramatically. Investors are uncertain. Mutual fund investors have been pulling out their money for the last five years, starting with the first hints of the stock market crash that evolved into the second worst recession in three quarters of a century. Many were disappointed when the rally of the first half of 2011 turned into the rout of the second half. Now, when we are seeing the best January in over a decade many are sitting on the sidelines. Traders typically follow both fundamental and technical analysis of stocks. But the fundamentals have been poor and economic recovery is slow even where it exists. Low volume and poor liquidity make technical trading more difficult and chancy trading stocks in a low volume market.

There are a number of basics that have been and will be affecting markets. The debt situation in Europe has dragged on for a couple of years and there is no clear resolution in sight. The possibility of one more nations in the EU being unable to pay their national debts scares bankers and big investors alike. The US appears to be coming out of the recession but the risk of a double dip recession in Europe makes investors skeptical. China, the growth engine of the last decade or more, is looking at a decrease in exports, a possible real estate market crash, and a more expensive Yuan as both the European Union and United States steadily devalue their currencies. When trading stocks in a low volume market, keep an eye on the printing presses. The so called Bernanke Doctrine designed to avert a depression, calls for, among other things, printing money in large quantities to maintain credit and keep businesses running. The new president of the European National Bank appears to be following the path of Mr. Bernanke so that we may see a steady devaluation both the Euro and US dollar. This is meant to forestall a depression and make exports from both economies more competitive. However, it will also make things valued in dollars and Euros cheaper and that could include US stocks. Someone trading the Russell 2000, for example, might find that his stock portfolio is going up as valued in dollars but going down when compared to oil, gold, and other commodities. Those still in the game trading stocks in low volume market have typically picked a scenario to follow and are doing so.

As we have often pointed out, not all stocks do badly in bad markets. If war breaks out in the Persian Gulf traders may want to brush up on how to trade oil stocks. Oil companies with operations outside of the Persian Gulf could do very well if Iran tries to close the Straits of Hormuz. Oil stocks could, in fact, go either way as the US is using new technology to extract oil that was previously difficult to bring to the surface. In fact, in the last few years, the US has reduced its dependence on foreign oil to forty percent. In fact, combined US and Canadian production is expect to surpass record levels by 2016 according to a report in the Houston Chronicle. The United States could possibly become the number one producer in the world by the end of the decade. When trading stocks in a low volume market, traders may wish to keep their eye on oil.

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